Business Property & Mortgages

Wednesday 29 March 2017

ECB prepares to hit homeowners with rate hikes

Three increases on way before end of year

Charlie Weston Personal Finance Editor

HOMEOWNERS are bracing themselves for the first in a series of interest rate rises that will increase the pressure on family budgets.

The 23-member European Central Bank governing council, headed up by Jean-Claude Trichet, is set to meet in Frankfurt today when it is widely expected to start the rate-rising cycle by pushing rates from 1pc to 1.25pc.

A rise in rates means that more than half-a-million homeowners with trackers will see their mortgage repayments automatically rise.

A survey of economists across Europe has predicted that the ECB will hike rates three times before the end of the year.

Three increases of 0.25pc each will add €45 to the monthly repayments on every €100,000 borrowed. Tracker holders, some of whom have rates which are set at just 0.75pc above the ECB rate, have benefited from rates being unchanged since May 2009.

Some 200,000 people with variable rates are also set to be hit as under-pressure lenders are expected to pass the full ECB rise on to their customers.

Already this year variable rates have gone up for mortgage customers of Permanent TSB, Irish Nationwide, EBS, Haven and Ulster Bank.

A number of banks have also hiked the cost of fixing mortgages, with at least three lenders shutting off the options of customers locking into a fixed rate.

Irish home-loan borrowers are among the most exposed in Europe to rate hikes, as around 85pc of mortgage holders have some form of variable rate mortgage -- either a tracker or a standard variable rate.

Those with a fixed rate will be unaffected by an ECB rise.

A survey of 31 economists across Europe, carried out by news agency Bloomberg, found that most of them expect the eurozone rate to hit 1.75pc by the end of this year.

And further rises are also expected next year.

Director general of the Free Legal Advice Centres Noeline Blackwell said mortgage rises would push more people into arrears.

Struggling

Already 80,000 homeowners, or one in 10 of those who have a mortgage, are struggling to meet their repayments.

Most international investors and commentators feel the ECB is set to make a huge policy mistake by pushing up its key rate. The price of oil, gold and other commodities shot through the roof yesterday after investors decided the ECB was on the verge of a policy blunder.

The euro hit a 14-month high on fears the rate rise would sap international growth.

And a study by Swiss bank Credit Suisse has concluded the economy in Ireland is so fragile that interest rates should not increase at all. This is in stark contrast to booming Germany where rates would need to rise to 4.5pc to dampen inflation, Credit Suisse concluded.

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