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Another rate hike on horizon





HARD-pressed mortgage holders are facing another interest rate hike in weeks -- just three months after an April rate rise that added €45 to the average monthly repayments.

The near certainty of an impending rate rise next month emerged yesterday after European Central Bank (ECB) president Jean-Claude Trichet stressed the need for "strong vigilance" to curb inflation.

Mr Trichet acknowledged that the "strong vigilance" phrase typically implied an imminent rate rise, but stressed that no decision had been taken about July's action.

"We are in a mode where there might be at the next meeting an increase in rates, but we are not pre-committed," he said.

Experts are now pencilling in a 0.25pc hike in July, which would see Ireland's 600,000 variable and tracker mortgage holders pay €15 extra a month on every €100,000 they owe.

Mr Trichet yesterday rejected criticisms that the higher rates could damage economic recovery in weaker countries like Ireland, insisting that it was for "the good of the euro area as a whole" if the ECB used interest rates to control inflation.

Central Bank of Ireland governor Patrick Honohan, who sits on the ECB's governing board, recently admitted that he would vote for an increase in eurozone interest rates -- even if the move had adverse implications for Ireland.

"I have to wear a European hat," he said. "It is the only area of policy where Ireland is not my priority. . . I'll not be paying much attention to Irish economic conditions (when making decisions on interest rates)."

Central Bank governors voted "unanimously" not to raise rates at yesterday's meeting, Mr Trichet said, even though rising commodity prices and energy costs are pushing up inflation.


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Eurozone inflation was 2.7pc last month, well above the ECB's target of just below 2pc.

People on fixed-rate mortgages will be unaffected by the rises. But some eight out of 10 Irish mortgages are variables -- either trackers or variable rates.

Trackers rates automatically move when ECB rates change. And lenders have been pushing up variable rates all year and are expected to pass on July's hike to their homeowners.

Last month, Ulster Bank raised its variable rate by 0.6pc to 4.95pc with effect from July 1. Earlier in the year it raised variable rates by 0.5pc. Economist are now warning that there could be a third ECB interest rate rise by the end of the year.

Frank Conway of personal finance website MoneyCoach said the ECB was attempting to combat inflation.

"Inflation, while moderating very slightly in May, is still at a level that is higher than the Governing Council of the ECB would prefer," he said.

He predicted that mortgage arrears would continue to climb. Almost 50,000 mortgage-holders were in arrears on their monthly repayments at the start of the year, according to the latest figures from the Central Bank.

An additional 36,600 mortgage holders have had their monthly payment arrangements modified by lenders to reduce the monthly repayments.

"Rising arrears in Ireland may be recognised by the ECB, but are unlikely to ever sway the decisions of the governing council. Containing inflation is the primary task of the bank," said Mr Conway.

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