Few mortgage holders to be spared pain as ECB set to increase interest rates again

The European Central Bank (ECB) is set to increase interest rates to their highest level in more than two decades today, leaving mortgage holders facing higher monthly repayment bills.

The Frankfurt-based rate-setters are expected to add another 0.25 percentage point to borrowing rates, taking the key rate to 3.5 per cent, a level last seen in 2001.

Many people currently in the process of buying their first home will have to pay almost €3,500 more each year for comparatively modest loans when compared with those who bought this time last year because of successive ECB interest rate increases.

A typical tracker mortgage holder, meanwhile, is likely to be worse off by more than twice that amount with more bad news expected for that cohort today when the ECB announces a widely anticipated rate increase in an effort to curb inflation across the euro zone.

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This time last year four-year fixed rates were available to first-time buyers from the State’s pillar banks at rates of between 2.2 per cent and 2.35 per cent but the rates currently being offered to many first-time buyers from AIB, Bank of Ireland and Permanent TSB range from 3.7 to 4.25 per cent.

That means purchasers with a 10 per cent deposit borrowing €270,000 over 30 years from PTSB at a rate of 4.25 per cent this month will face annual repayments of €15,936, while a loan of exactly the same size taken out this time last year with the same bank and fixed for four years is costing last year’s borrowers €12,504 or €3,432 less.

Tens of thousands of tracker mortgage holders, meanwhile, have been hit even harder by seven successive rate increases with today’s expected hike set to inflict more financial pain.

With four further European Monetary policy meetings set to take place before the end of the year “additional increases are not off the cards”, warned Martina Hennessy, managing director of mortgage broker doddl.ie.

She said that over the last 12 months tracker rates have jumped by 3.75 per cent as the ECB has focused on driving down inflation across the euro zone.

Ms Hennessey noted that when the latest increase is added tracker rates will have climbed by 4 per cent which will add around €500 in interest per month to an average tracker mortgage of €250,000 with a 20 year term or €540 if rates go up by 0.5 per cent. “Annually, that equates to a massive €6,060 or €6,480 respectively,” she said.

Daragh Cassidy of bonkers.ie warned that ECB rates would “probably hit 4.25 per cent by the end of the summer”.

“This means the average tracker customer will soon be paying a rate of around 5.5 per cent, while the best rate available to prospective first-time buyers will likely be similar by the end of the year.”

Mark Coan of money guide moneysherpa.ie said that while tracker rates are climbing steadily tens of thousands of people with trackers had yet to switch to fixed rates. He said that rates of around 3.7 per cent were on the table still. “If you’re a tracker customer you need to talk to a mortgage broker to see if you should stick with your tracker, take up your fixed rate offer or fix with another lender before it’s too late.”