More pain ahead for borrowers as ECB eyes next rate hike

Tracker mortgage holders in the Republic are bracing themselves for another European Central Bank (ECB) interest rate hike this week, the eighth since last July, as Frankfurt continues to fight surging consumer prices across the bloc.

ECB rate setters are expected to lift interest rates by a further 0.25 percentage point on Thursday, raising the bank’s main refinancing rate from 3.75 per cent to 4 per cent, and by further quarter point in July. The moves will come with core or underlying inflation still more than double the ECB’s target rate of 2 per cent.

Investors now see the ECB’s terminal rate settling at about 4.25 per cent, indicating that at least two more hikes are fully priced in, but some analysts see the ECB going to 4.5 per cent before pausing its current phase of tightening.

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The State’s 250,000 tracker mortgage holders are bearing the brunt of the financial squeeze. A further 0.25 percentage point increase on Thursday will add approximately €35 per month to repayments on a standard €250,000 tracker mortgage.

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Tracker mortgage holders have already seen the rate tied to their loans increase by 3.75 percentage points since the middle of last year, adding about €470 a month to the average tracker mortgage with a balance of €250,000 and a remaining term of 20 years.

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Martina Hennessy of online mortgage broker Doddl.ie said this week’s expected rate hike represents a “further blow and once again impacts affordability for many tracker mortgage holders”.

Considering the expectation of upcoming rate hikes by the ECB, analysts predict that average tracker mortgage rates could rise to 5.65 per cent by the end of the year – taking into account an average tracker margin of 1.15 per cent and a projected base rate of 4.5 per cent, Ms Hennessy said.

Ms Hennessy said for non-tracker mortgage holders the outlook for 2023 is for further rate increase as funding costs for the banks continue to rise and inevitably this cost is passed on to mortgage customers.

Recent Central Bank research highlighted that 40 per cent of mortgage holders would remain unaffected by rate increases until the end of 2023.

Meanwhile, AIB and EBS have increased rates for savers, doubling the return for regular savers to 2 per cent. The banks said it would apply the rate to its regular saver products, along with AIB Junior, AIB Student Saver and EBS Family Savings accounts. But the top rates come with caveats, applying to regular savings of up to €1,000 a month for the first 12 months. The rate drops to 0.10 per cent after this.

AIB’s one-year fixed term account for both personal and business customers will have a rate of 1.5 per cent for deposit balances of greater than €15,000, an increase of 1 per cent, while the EBS children and teen savings rates will also increase by 1 per cent.