Tuesday 25 July 2017

Rate rise will push borrowers over edge

Yesterday's increase in interest rates by the ECB piles even more pressure on hard-pressed borrowers. With 10pc of all Irish loans already in arrears, dearer money will inevitably push more borrowers over the edge. We can't say that we weren't warned. Since the start of the year, the ECB has been dropping ever-heavier hints that its official interest rate, which has been at an all-time low of just 1pc since May 2009, would be increased.

And yesterday's rate rise is unlikely to be the last. In its statement announcing the interest rate increase, the ECB warned of "upside risks to price stability". This almost certainly means that the inflation-obsessed ECB will keep pushing up interest rates. Financial markets are now forecasting that official ECB rates will hit 2.5pc at some stage during 2012.

That is extremely bad news for all Irish borrowers. First to feel the pain will be homeowners with tracker mortgages -- over half of all mortgages -- who have up to now been shielded from higher interest rates. As trackers are explicitly tied to official ECB rates, these interest rates will rise immediately.

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