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News : Irish Economy Last Updated: Oct 14, 2011 - 9:07 AM

Bank of Ireland to raise business interest rates
By Finfacts Team
Oct 14, 2011 - 7:18 AM

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Bank of Ireland was founded in 1783 and the premises at College Green, Dublin, of the Irish Parliament, which became defunct on the Act of Union coming in to effect in 1801, were purchased for £40,000 in 1803.

Bank of Ireland plans to raise business interest rates through changing the calculation of the cost from the Euribor inter-bank rate which is calculated daily by the European Banking Federation in Brussels using rates charged on inter-bank loans in the wholesale market, supplied from a panel of 44 Eurozone banks.

BoI says rates such as the Prime Rate will in future no longer be based on the Euribor but will be calculated  using its own costs of raising money through customer deposits, the money markets and other funding sources.

On Tuesday, BoI published a Prime Rate of 1.42% down from a recent stable level of 1.97%. The bank told Finfacts on Thursday:"You were right to pick up the lower rate based on the Tuesday, 11thOct commentary.  However, from an initial look, it appears that the Prime Rate recorded on Tuesday may have been incorrect.  As such, please reinstate the Prime Rate to 1.97% from today."

A Bank of Ireland customer also told Finfacts on Thursday that BoI had advised him that the Prime Rate applying to 3 outstanding mortgages, would be raised because of a change in the calculation basis.  

The bank estimates that about 20% of business customers will be affected.

The new system takes effect from November 16th on loans of more than €300,000, which are expected to incur a rise of about 0.7%.

Meanwhile, The Irish Independent reports today that banks are to be stopped from targeting 200,000 variable mortgage holders with repeated rate hikes which are costing families an average of €120 a month in additional repayments.

Matthew Elderfield, the Financial Regulator, is to outline a new clampdown on banks who are piling the pressure on hard-pressed homeowners.

The newspaper says the get-tough policy by Elderfield also means he will put pressure on lenders to cut variable rates when the ECB lowers Eurozone rates, a move that could happen before Christmas.

Banks have been hiking their variable rates -- some to as high as 6% -- as they desperately try to make up for losses.

Since the start of the year most lenders have hiked rates numerous times over and above the increases by the ECB.

This means variable rate customers with a €200,000 mortgage are paying €120 a month more than those on trackers and fixed rates because the banks can't touch those.

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