Homeowners face rate hike as EU warns of inflation risk
Published 14/01/2011 | 05:00
HOMEOWNERS were yesterday facing the prospect of higher mortgage payments as early as September.
European Central Bank (ECB) president Jean-Claude Trichet warned that concerns about inflation across Europe could force it to hike rates earlier than expected.
A rise in rates by the end of the summer would see 600,000 homeowners on tracker and variable-rate mortgages facing higher repayments.
Mr Trichet warned that signs of a rise in inflation in the eurozone could prompt the ECB to move soon on rates.
His hawkish stance came as a surprise to the markets.
Some 400,000 homeowners have tracker mortgages, which will rise with ECB rate hikes.
Another 200,000 variable-rate mortgages will also be impacted by a rate rise.
Every 0.25pc rise will push repayments up by €15 on every €100,000 borrowed according to Frank Conway, a director of Irish Mortgage Corporation.
The ECB's key interest rate has been 1pc for the last 20 months.
Governors of the ECB, including Central Bank governor Patrick Honohan, decided at their meeting yesterday to leave interest rates unchanged.
But Mr Trichet warned: "We are permanently alert. We are never pre-committed not to move interest rates and our level of interest rates is designed to deliver price stability."
He told a press conference in Frankfurt interest rates were appropriate for now, but warned that inflation was higher than expected.
The ECB's main concern is inflation and it has used interest rate rises in the past to attempt to curb price rises.
Increases in consumer prices exceeded the ECB's ceiling for the first time in more than two years in December.
Inflation jumped last month to 2.2pc, the first time in two years that it has risen above the central bank's target of just below 2pc.
Mr Trichet added: "We see evidence of short-term upward pressure on overall inflation, mainly owing to energy prices, which has not so far affected our assessment that price developments will remain in line with price stability over the policy-relevant horizon."
However, the ECB is said to be aware that higher interest rates would saddle debt-laden countries such as Ireland, Greece and Portugal with still higher borrowing costs.
KBC Bank economist Austin Hughes said he expected a rise in eurozone rates by September.
He added that this was because of the poor inflation outlook, growth picking up in the eurozone and because Mr Trichet was due to step down in October.