The European Central Bank is increasing its interest rates for the first time in eleven years which will have a major impact on people on variable and tracker mortgages.
The era of cheaper mortgages is ending as the ECB published increases in interest rates. A rise of 0.5% was confirmed by the bank in its first increase since 2011.
It will be passed on to nearly 300,000 people in Ireland on tracker mortgages. It could also be passed on to 200,000 Irish customers on variable mortgages.
Its the key rate that determines what banks charge customers on their borrowings. The interest rate on the marginal lending facility will rise to 0.75%.
It will also see the deposit rate moving back to zero for the first time since 2014.
Adjunct Professor in Economics at Trinity College Dublin, John Fitzgerald explains why this is happening:
”The way to control the growth in prices in the long run is to tighten monetary policy, that is to raise interest rates which will slow activity and take money out of the economy so there’s less money chasing the same amount of goods.”
Managing Director of Dowling Financial, Michael Dowling, says this will be one of many increases ”The markets are predicting possible increases of between two and two and a half percent over the next two and a half years.”
Minister of State for Public Procurement and Government, Ossian Smyth, says its another worry for mortgage holders: ”Its a difficult place to be right now. I completely understand anybody else who has a mortgage at home, who’s worried about having yet another price go up and I think its something we have to look at very carefully.”
A family on a €250,000 tracker mortgage having to pay an extra 1,080 per year, a nd with consumer confidence low in Ireland the big question remains will banks pass on high rates to customers.