Mortgage woes as the ECB now plans two more rate hikes by the end of the year

The European Central Bank (ECB) is expected to hike lending rates twice by the end of the year, a move that will put tracker and adjustable-rate mortgage holders under severe financial pressure.

According to market experts, prices are likely to increase by 1 percentage point or even 1.25 percentage points by the end of this year.

This despite fears that the European economy is slipping into a downturn.

Such a move would cost those with trackers and variable rates thousands of extra dollars in repayments and skyrocket the cost of new fixed rates.

The ECB surprised markets last month by raising interest rates by 0.50 percentage point – double that

was what most market commentators expected. The rate hike in July was the first in 11 years.

It is now expected to hike rates again next month and is coming under pressure to hike a third time before the end of the year.

Over the past two weeks, people with tracker mortgages have received notifications that their borrowing costs will increase in the coming weeks.

A tracker mortgage holder with €200,000 left to pay could face an additional €45 in monthly repayments following the ECB’s rate hike in July.

Now, a family with a home loan of this magnitude could face an additional €96 a month in repayments if interest rates rise another percentage point.

This would have increased monthly repayments by €137. Over a year, that makes around 1,690 euros in additional repayments.

There are around 250,000 homeowners with tracker rates and around 200,000 mortgage holders with adjustable rates.

These borrowers are vulnerable to rising market interest rates.

The three largest banks held back from raising their floating rates as the ECB hiked rates last month to stave off red-hot inflation.

However, according to mortgage market observers, the banks in Germany are unlikely to be able to cope with a further increase.

Earlier this month, Avant Money increased its variable interest rates by 0.45 percentage points to 0.50 percentage points.

A note sent to investors yesterday by specialist bank Investec’s Dublin offices says ECB interest rates are set to rise by 1 percentage point this year, with interest rates in the 19 countries that share the euro currency rising next year get abandoned.

ECB Executive Board member Isabel Schnabel took a tough stance last week when she said inflation is unlikely to ease without rate hikes.

“Even if we do enter a recession, it is quite unlikely that inflationary pressures will abate on their own,” she said.

The head of the German central bank, Dr. Joachim Nagel warned over the weekend that inflation in Europe’s largest economy is likely to exceed 10 percent for the first time in 70 years.

“With the high inflation rates, further interest rate hikes must follow,” he said.

Markets are currently pricing in a 0.5 percentage point gain over the next month with further gains through the end of the year.

Economist Austin Hughes said he expects European interest rates to rise another 0.5 percentage point in September, with a further rise at the same level between October and December.

However, there was a possibility that the ECB might even target a 0.75 percentage point hike in October or December. Mortgage woes as the ECB now plans two more rate hikes by the end of the year

Fry Electronics Team

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