The European Central Bank (ECB) has increased interest rates for the fourth time in nine months and has indicated that further rises are on the way.
The quarter point increase yesterday by the ECB, which will be passed on to most mortgage holders in the coming weeks, takes its key lending rate to 3 per cent and will adding a further €20 to €50 to the monthly repayment on many mortgages.
It is now expected that the ECB will make two further quarter point interest rate hikes before Christmas, most likely in October and December.
Homeowners with a mortgage of €250,000 over 25 years will see their monthly repayments increase by €34 to €1,333, based on a typical ECB tracker mortgage.
These monthly repayments are now €134 higher than they were last December, just before the ECB made its first interest rate hike in more than five years.
Sharon Donnery, the Irish Financial Services Regulatory Authority's head of consumer information, said many homeowners would now start to feel the cumulative effect of the interest rate rises. First-time buyers, people with larger mortgages and those with several variable rate personal loans would be most affected.
"Some people may need to adjust their budgets to deal with this latest increase," Ms Donnery said.
IIB Bank's chief economist Austin Hughes said about 50,000 borrowers would have to tighten their belts and up to 80,000 would have to "look at their sums".
ECB president Jean-Claude Trichet adopted a hawkish tone in comments after the meeting in Frankfurt. "After today's increase, the key ECB interest rates remain low in both real and nominal terms . . . Our monetary policy therefore continues to be accommodative.
"If our assumptions and baseline scenario are confirmed, a progressive withdrawal of monetary accommodation will be warranted."
The surprise decision by the Bank of England's monetary policy committee yesterday to raise British rates for the first time in a year reinforced Mr Trichet's views about the "upside risks" on inflation in the medium term.
Analysts are now predicting that rates are likely to rise to 3.75 per cent some time next year with more bearish commentators pointing to rates of 4 per cent - double what they were before the start of the current cycle.
The sharp rise in borrowing in the Republic in recent years has made the economy more sensitive to even modest interest rate changes, Mr Hughes said, but its otherwise strong position should ensure that the property market calms rather than collapses.
Deputy leader of the Labour Party Liz McManus said the interest rate increase was yet more bad news for Irish families, especially those who were buying their own homes or aspired to do so.
She said the rate hikes meant that mortgage repayments had risen by more than the pay increase promised to workers under the recently concluded partnership agreement.
While financial institutions continued to make record profits, she said, "the financial screw is being tightened even further on hard- working families".
Green Party finance spokesman Dan Boyle said homeowners' quality of life would deteriorate as a result of the rate increase.
"This is further bad news for households who are already going to be hit by gas price increases in October and anticipated electricity increases by January of next year," he said. "Families are now increasingly stretched when it comes to basic outgoings such as commuting, childcare, mortgages and food."
