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Homeowners warned to expect multiple interest rate rises after ECB hike

Borrowers on trackers facing €57 a month jump in their repayments

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President of the European Central Bank Christine Lagarde and Vice President Luis de Guindos arrive at a news conference following the ECB's monetary policy meeting, in Frankfurt, Germany, yesterday. Photo: Reuters/Wolfgang Rattay.

President of the European Central Bank Christine Lagarde and Vice President Luis de Guindos arrive at a news conference following the ECB's monetary policy meeting, in Frankfurt, Germany, yesterday. Photo: Reuters/Wolfgang Rattay.

President of the European Central Bank Christine Lagarde and Vice President Luis de Guindos arrive at a news conference following the ECB's monetary policy meeting, in Frankfurt, Germany, yesterday. Photo: Reuters/Wolfgang Rattay.

Interest rates are set to rise multiple times in the next few months in a move that will pile pressure on households and businesses.

The European Central Bank (ECB) shocked mortgage holders and companies with a larger than expected rise of 0.5 percentage points in its key lending rate.

That has prompted economists to predict it has moved to an “aggressive” phase of multiple hikes.

The increase is set to cost 250,000 families on trackers and those on variable rates hundreds of euro a year in higher repayments.

It means a family with a typical tracker will pay an additional €57 a month or €684 a year.

This is based on a loan of €250,000, with 25 years remaining, on a 1pc margin over the ECB rate.

The ECB refinancing rate has gone from 0pc to 0.5pc – the first hike in 11 years.

There are fears that ECB rates will hit 2.5pc by end of next year, adding more than €3,200 a year to the cost of servicing a typical tracker mortgage.

Irish banks have refused to rule out passing on rate rises to the 200,000 homeowners on variables.

Goodbody Stockbrokers economist Dermot O’Leary said the “aggressive” 0.5 percentage point increase indicates there will be more rate rises in the coming months.

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He expects the ECB refinancing rate, which determines mortgage rates, will be at 2.5pc by the end of next year.

Economist Austin Hughes said the ECB “has gone from patience to panic over inflation”.

He warned mortgage holders and businesses to expect large increases in rates in the months to come.

“There will be a couple of half percentage point rises in the next few months. There could even be three by the end of this year,” he said.

Financial adviser Frank Conway, the founder of financial well-being site MoneyWhizz, said the 0.5 percentage point increase will shock many people.

“It will put the finances of mortgage-holders under pressure and add to the financial squeeze on hundreds of thousands of families across the country,” he said.

“It also sets an aggressive tone for more increases to come.”

Mr Conway said it was important for people to build and maintain their household emergency fund, reduce and eliminate expensive debt and protect their credit scores to ensure they have access to credit in the event it is needed in the future.

Asked about how it would react to the ECB announcement, Bank of Ireland said: “For those customers that hold a tracker mortgage with Bank of Ireland, following any increase in the relevant European Central Bank rate, Bank of Ireland will communicate any changes in their tracker rate with our customers in an appropriate and timely fashion.”

It said it was keeping fixed and variable rate offerings under review.

AIB said it was keeping all its rates under review.

Banks usually increase tracker rates a month after an ECB rise.

Permanent TSB said it can absorb the initial rise in ECB rates without passing the cost on to variable-rate borrowers, which will put pressure on other lenders.

Brendan Burgess, the founder of personal finance website Askaboutmoney.com, said Irish banks should be reducing mortgage rates, even as the ECB rate goes up.

He said families here are already paying one percentage point more for new mortgages than the average rate in the eurozone.

On a mortgage of €300,000, this is €250 more interest each month.

The average rate for a new mortgage in this country is 2.73pc compared with 1.76pc across the zone.

The average new variable rate is 3.66pc, with Bank of Ireland charging 4.5pc to existing customers with a loan to value of 90pc, Mr Burgess said.

He added that lenders were keeping variable rates high, but competing for new business with fixed rates.


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