MORTGAGE rate rises of about half a percentage point are likely to be announced by most lenders next week. At least two major lenders have already withdrawn their fixed rate mortgages after a week of exceptional turbulence on the Irish foreign exchange and interest rate markets.
First National has withdrawn its fixed and discounted products while Irish Permanent has taken all fixed rate loans off the shelves.
Both say they will meet on Tuesday to review the situation. Spokesmen for the two major banks said they were monitoring the situation and had made no decision on whether to increase rates.
A spokesman for EBS also said the society would be looking at the situation next week. "We will aim to keep our pricing competitive but will have to take cognisance of the overall costs of funds," said Mr Martin Walsh, head of lending at the society.
One bank source said the situation was "too volatile" yesterday to make any decision, and that the bank would wait until next week to see how the markets settled. The Central Bank has strongly indicated it wants banks and building societies to raise interest rates only by half a percentage point.
Rapid rises in wholesale rates immediately after the Bank's rise in its short-term facility had speculation that rises of up to 1 per cent in retail rates were possible.
However, the Bank moved into the money markets yesterday morning and aggressively pushed down the important one-month rate to around 6.25 per cent.
With the one-month rate now trading below the STF, the threat of further rate rises has been lessened.
At the same time the pound rose only slightly on the currency markets, as investors' attention was diverted to the British Labour party's massive victory.
The pound closed in late trading at 92.30p against sterling from 91.80p a day earlier and at DM2.5830 from DM2.5616.
The pound was supported again by some profit-taking. However, Mr Jim Power, chief economist at Bank of Ireland said he expected selling pressures to re-emerge over the coming weeks.
"The pound will probably now edge up gradually against the mark," he said. "If it goes over 2.60 marks it will become susceptible to attack."
He added that most London dealers were preoccupied with the domestic situation and had temporarily taken their eye off Ireland. Many European traders were also on holidays after May Day, he noted.
However, sterling's post-election jitters proved temporary. After losing three pfennigs following Labour's win, it recouped most of the losses by the end of the day.
Mr Paul Lambert, senior currency strategist at UBS in London, said sterling was likely to recover unless there was a fundamental change in the policies the Labour Party proposed before the election. "Downward moves like this should be seen as a buying opportunity," he said.
A quarter of a percentage point rise in British interest rates is expected at the next monetary meeting, scheduled for Wednesday. However, it might be postponed to give new Chancellor of the Exchequer, Mr Gordon Brown more time to prepare.
