Borrowers face a substantial increase in repayments as bank and building society interest rates rise sharply in the weeks ahead.
In an effort to cool inflation in Europe, the European Central Bank has increased its key interest rate by a half percentage point - double the rise expected - to 4.25 per cent.
The move will be welcomed by the Department of Finance and the Central Bank in Dublin as it should help to slow house-price inflation.
Nevertheless, in Frankfurt the ECB president, Mr Wim Duisen berg, warned that policy-makers here would come under pressure to take further action to rein in house prices and not rely solely on higher interest rates.
Speaking to The Irish Times before the decision to raise interest rates was announced, Mr Duisenberg warned that if inflation continued to accelerate, Irish industry would price itself out of the market and first-time buyers would find themselves increasingly shut out from the housing market.
He added that he had made his concerns clear to the Minister for Finance, Mr McCreevy, during his regular confidential meetings with European finance ministers.
Mr Duisenberg conceded that it was difficult for the Government to control inflation, but suggested that cuts in indirect taxes - VAT and excise duties - should be considered to help take the immediate pressure off the consumer price index.
He said: "I admit it is very difficult to do something about this. What the Government can do it should do in the area of indirect taxation, which has an effect on price increases.
"Because I know that if the ball starts rolling, price increases are followed by wage demands which try to compensate for the loss of purchasing power that people experience. It is in the interests of the parties themselves that the vicious circle is broken," he said.
He refused to take any responsibility for the quickly rising rate of Irish inflation and the consequent difficulties.
"If Ireland had not gone into monetary union, the pound would have appreciated with sterling and there would have been a much more serious competitiveness problem," he said.
The Government will hope that yesterday's interest rate increase and the resulting rise in bank and building society rates will cool the housing market.
Mortgage repayments are likely to rise within weeks, in the latest of a series of increases. Repayments on a £75,000 mortgage will rise by around £20 a month. Borrowers on a current variable rate of 4.89 per cent on a 20-year loan pay just over £490 per month. This will rise above £511 if the full increase is passed on to customers, bringing the rate up to 5.39 per cent.
Since the low of 3.99 per cent last autumn, borrowers with a mortgage of £100,000 will have seen monthly repayments rise by about £76 to just under £682.
Lenders said last night that the first announcement of retail rate increases would probably not come until next week.
According to Mr Jim Power, chief economist at Bank of Ireland, the rise in mortgage rates will put immediate pressure on the inflation rate as measured by the consumer price index. On its own, it would add about 0.6 of a percentage point to inflation, bringing it above 5 per cent in June, he said.
Despite the scale of the rise, the move may not be the last. At a press conference following the meeting yesterday, Mr Duisen berg said he believed that policy might be still "accommodative".
However, he added that the motive for the half percentage point rise was to arrest the process for some time to come "but we do not know how long. We think we have cleared the horizon, but it could be a moving horizon."
Meanwhile, trade union leaders and senior Government officials meet today to discuss ways of curbing inflation and protecting increases negotiated under the Programme for Prosperity and Fairness.