Let’s look at the Central Bank research, which mainly covers the 84 per cent of loans held by Irish banks – and not those owned by nonbank lenders, though we will return to those, too.Those most exposed to higher interest rates – in terms of facing increases in their repayments – are those on tracker mortgages, which adjust automatically with ECB rates.
By the end of the year the gap had closed – tracker rates had gone up to an average of 3.3 per cent while non-tracker variable rates had hardly moved. Not surprisingly those most exposed are largely tracker mortgage holders, while those on other variable rates are also in the firing line, assuming that more of the increases are passed on to this group as the year goes on.
In terms of exposure, as well as the type of loan and the outstanding balance, another key factor is years of the mortgage remaining – those with 8 years outstanding are much less exposed, for example. Separate Central Bank research see some rise in mortgage defaults as being likely, though nothing like the scale of the financial crash. The default rate could rise from 8 per cent of mortgages to close to 10 per cent, though it could go a bit higher depending on circumstances.While the Central Bank research focuses on data from the regulated Irish banks, a group of borrowers who have loans with nonbank lenders – sold on by Irish banks, including Permanent TSB – are also among the worst exposed.
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