The European Central Bank (ECB) is poised to give homeowners a hammer blow today with a second sharp rate hike.
Interest rates could rise by as much as 0.75 percentage points, adding €900 to the annual cost of repaying a typical tracker mortgage. This is followed by an increase of 0.5 percentage points in July.
The combination of a significant increase this week on top of the July increase would mean a family with a €200,000 tracker plan would have to pay an additional €117 per month.
Calculated over a whole year, the repayments would be €1,400 higher.
There are nearly half a million tracker or variable rate mortgage account holders who are vulnerable to higher European interest rates.
The big three banks spared adjustable-rate customers ahead of the ECB’s July hike, but that’s unlikely to happen this time around. Customers with a variable interest rate and a mortgage of 200,000 euros with a term of 25 years can expect an increase of 0.75 percentage points in additional monthly repayments of 78 euros.
Over a year, this is an additional €930 in mortgage costs.
Economists said it was not certain the rate hike would be 0.75 percent today – it could be another 0.5 percentage point rise – but they still expected rates to rise 1.5 percentage points by the end of the year would rise.
Goodbody Stockbrokers economist Dermot O’Leary said it’s a coin toss whether rates rise 0.5 percentage point or 0.75 percentage point.
Wholesale money markets are pricing in the higher hike, he said, but a severe energy-related recession could mean a 0.5 percent rate would be introduced.
However, Mr O’Leary said he expected the ECB’s refinancing rate to be 2 per cent by the end of this year, so it was a question of when, not if, aggressive rate hikes would be implemented.
dr Tom McDonnell, co-director of the Nevin Economic Research Institute think tank, said the higher rate hike was more likely because “the ECB is spooked by how quickly the euro has fallen below the dollar.”
Independent economist Austin Hughes said money markets were pricing in a “huge rate hike”.
He said there was a possibility of further rate hikes next month and in December as the ECB tries to control inflation.
A number of ECB governors were recently quoted as endorsing a sharp rate hike.
Speaking at Jackson Hole’s annual central bank symposium in Wyoming late last month, ECB board member Isabel Schnabel said the ECB must show “determination” to tame inflation.
Under this approach, the central bank would be “more responsive to the current inflationary spike, even at the risk of lower growth and higher unemployment,” Ms Schnabel said.
In her speech, she emphasized that people had to “trust” that the ECB would restore their purchasing power.
The Frankfurt-based institution is already catching up with other central banks, including those in the US and UK, which have begun raising rates harder and faster in response to inflation.
The ECB’s so-called forward guidance, which restricted its scope for action, was dropped.
ECB President Christine Lagarde announced in July that political decision-makers would now make their decisions “meeting by meeting”.
The 25-strong Governing Council surprised at its last meeting in July with a 50 basis point hike, the first rate hike in 11 years.
ECB chiefs are keen to bring inflation under control, which stands at 9.1 percent in the currency zone. They hope that raising interest rates will help calm the rise in prices, although a number of economists have said such a move will do nothing to halt rising energy prices.
https://www.independent.ie/news/average-mortgage-hikes-of-up-to-900-a-year-as-european-central-bank-is-poised-to-raise-rates-again-41970460.html Average mortgage increases of up to €900 a year as the European Central Bank poised to hike rates again