ECB set to raise interest rates by 0.25 percentage point

The widely anticipated interest rate increase from the European Central Bank (ECB) will see tracker mortgage holders hit first but its impact will also be felt across the broader mortgage market in the months ahead, it has been warned. It is almost certain that the ECB will announce a rate increase of 0.25 percentage points at its monthly meeting on Thursday with more than 100,000 people who hold tracker mortgage almost immediately seeing their repayments climb by around €14 for every €100,000 owed. The hike will potentially impact variable rates offered by Irish banks in the months ahead and people coming off fixed rates are also likely to have to pay more warned Rachel McGovern of Brokers Ireland.“With little prospect of the Middle East conflict being resolved and other pressures such as that on the bond market, we could be facing a tough winter for mortgage holders,” she said, warning that if negativity continues “we could see a further rate increase before year end”.READ MOREThe managing director of Finance Ireland, Conor McGowan told The Irish Times that the latest hike has been driven largely by inflationary pressures and “there is no indication yet as to whether lenders will absorb this rate increase or adjust the rates available to borrowers albeit some non-bank lenders did already increase rates this year”.The impending rate increase “is unlikely to materially change affordability for most borrowers in isolation”, he said but two or three consecutive increases on that scale could add anywhere between €1,000 to €2,000 per year to mortgage costs for many households.“If rates were to be passed on, for a €350,000 mortgage over 30 years, a 0.25 percentage point rate rise would add approximately €50 per month to repayments, depending on the starting interest rate and remaining term,” he said. “Over a full year, that equates to roughly €600 in additional repayments.”Average mortgage rates are still low in historic terms, with the average new mortgage rate in Ireland standing at around 3.5 per cent, he said, stressing that there were “some very competitive fixed rate options currently available in the market from as low as 3 per cent for qualifying customers depending on the loan to value or Ber rating of the home”.[ Irish mortgage holders warned to brace for ‘tough winter’ with two rate hikes expectedOpens in new window ]The chief executive of online brokers doddl.ie, Martina Hennessy, urged homeowners not to gamble on where mortgage rates go next. “The June rate increase served as a reminder that the rate environment can be volatile,” she said. “We are seeing more homeowners take the view that there is little benefit in remaining exposed if they can secure a competitive rate now. Borrowers are increasingly looking to lock in certainty rather than gamble on where rates go next.” Irish mortgage rates remain below the euro zone average, according to new figures from the Central Bank of Ireland.“In recent weeks, rates in many euro zone countries have edged upwards as a result of the ECB’s rate hike in June and in anticipation of further hikes later in the year, the first of which is likely to come tomorrow,” said Daragh Cassidy of bonkers.ie. “Although we’ve seen fairly big rate increases from some of the smaller lenders, such as ICS Mortgages and Nua Money, rates from AIB, Bank of Ireland and PTSB, which together account for around 90 per cent of all new mortgage lending in Ireland, have remained unchanged. “This is because these lenders are able to rely on their sizeable deposit bases for a large portion of their mortgage lending, so they are less exposed in the short term to changes in wholesale funding costs arising from ECB rate hikes.” He said that meant mortgage rates in Ireland are currently below the euro zone average, “something which is unusual for Ireland in recent years”.