‘Nightmare before Christmas’ as ECB hikes rates

The European Central Bank (ECB) has been accused of delivering a “nightmare before Christmas” after raising lending rates for the fourth time since the summer.

It has also warned against raising rates again, most likely at its next meeting in February. However, this increase is likely to be smaller.

The latest rate hike is expected to hit those whose mortgages have been sold to vulture funds hardest, as they are stuck on variable rates that are the highest in the country.

The ECB’s main refinancing rate, which is directly linked to the tracker rate and influences floating rates, rose by 0.5 percentage point.

Every 0.5 percentage point increase in European interest rates increases monthly repayments by about €25 for every €100,000 owed on a typical tracker mortgage. Seen over a year, that’s €300 in special repayments.

The cumulative effect of the four rate hikes will be nearly $3,000 on a typical $200,000 tracker over a 25-year period.

The ECB said inflation is likely to remain elevated next year, meaning interest rates “still have to rise significantly and steadily”.

Daragh Cassidy of price comparison site Bonkers.ie said: “While the ECB’s move was widely expected, it’s probably still the last thing tracker customers want to hear right before Christmas. Many expect significantly increased repayments compared to just a few months ago.

“It’s a real nightmare before Christmas. The rise in mortgage costs is now outstripping the rise in people’s energy bills.”

Broker Michael Dowling of Dowling Financial said he expects ECB rates to rise again by at least 0.5 percentage points before June next year based on market views.

This would result in the typical tracker increasing to 3.5 percent by a margin of one percentage point.

Mr Dowling said people with trackers worried about hikes should seek financial advice before abandoning that rate and opting for a correction.

Factors to consider when abandoning a tracker are the length of time before repayments end, the margin over the ECB interest rate and the amount owed, he said.

Pepper, which oversees about 60,000 mortgages owned by vulture funds, said the new ECB rate hike will initially only affect tracker mortgage customers, to whom such increases are automatically passed on as part of their contract.
Mortgage servicers like Pepper and Start and the funds that own the loans have been heavily criticized for passing on all four ECB rate hikes in full to most of their customers.

These mortgage holders tend to rely on variable interest rates because the service providers and vultures don’t give them the ability to set their interest rates.

Most of those whose mortgages are vulture-owned cannot switch lenders because many have a history of delinquency or have a split mortgage, with part of the loan deferred and paid off at a later date.

People whose loans have been sold have already seen their interest rates rise as high as 6.5 percent, with some now at 7 percent.

They have no way to fix it, prompting consumer advocates to say they are “mortgage prisoners.”

Recent figures from the central bank show that there are just under 200,000 mortgage accounts with a tracker rate, while about 150,000 have an adjustable rate.

Tracker rates are hit every time there is an ECB rate hike.

Major banks have not increased their variable rates, but unbanked lenders and vulture funds have increased theirs.

https://www.independent.ie/business/personal-finance/latest-news/nightmare-before-christmas-as-ecb-hikes-interest-rates-42223385.html ‘Nightmare before Christmas’ as ECB hikes rates

Fry Electronics Team

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