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More mortgage misery on the way as ECB to up rates

THE European Central Bank (ECB) is expected to signal this week that it intends to raise interest rates again next month.

Last month the ECB pushed up its main rate by 0.25pc -- the first rise in almost two years.

A rise of 0.25pc will add €45 to the cost of monthly repayments on a €300,000 mortgage.

Yesterday, the euro rose to a 16-month high on speculation that the ECB will hint at further interest rate hikes after its meeting on Thursday.

Eurozone inflation rose to 2.8pc in April from 2.7pc in March, according to the European data agency Eurostat.

April was the fifth month in a row in which inflation was above the 2pc target set by the European Central Bank. Economists say the data make an interest rate increase in June more likely.

Austin Hughes, chief economist at KBC Bank, said yesterday he now expected the ECB to announce on Thursday that rates would rise in June, followed by two more rate rises before the end of the year.

A rise in ECB rates will impact on around 600,000 householders who either have variable rate mortgages or trackers.

Banks were pushing up variable rates even before the ECB started increasing its rate last month, while tracker rates automatically rise when ECB rates rise.

Just 15pc of mortgages in this country are fixed, one of the lowest rates in Europe. This is despite repeated warnings that the ECB is set on a series of rate rises.

At its meeting last month, the ECB decided to push up its key rate from 1pc to 1.25pc.

Another rate rise in June, with two more by the end of the year, would take the ECB rate to 2pc.


Mr Hughes said: "The general belief in the markets is that there will now be a rate rise in June or July.

"The fact that inflation in the eurozone is now 2.8pc means that there will be more rate rises, with the ECB rate going to 2pc by the end of the year.

"Mortgage holders need to factor in ECB rates going to 2pc by the end of the year," he added.

Three more rate rises on top of last month's increase will mean that the monthly repayments on a €200,000 mortgage will have gone from €890 at the start of the year to €1,000 by the year end -- a rise of €110 a month.

Every 0.25pc rise in rates adds around €15 to the monthly repayments on every €100,000 borrowed.

Ensuring price stabilisation in Europe by keeping inflation at or below 2pc is the principal monetary policy of the ECB. It sees rate rises as the best way of stemming inflation.

Other data this month has suggested growth in both Germany and the eurozone is peaking, and figures from Spain, the biggest of the economies under threat in Europe's debt crisis, revealed surging unemployment and sinking retail sales.

Irish Independent