ECB interest rate hike to affect over 75% of Irish homeowners...
THE EUROPEAN Central Bank (ECB) raised its main lending rate by a quarter of a point to 1.25 per cent yesterday in a move that will add about €40 on to the monthly repayments of a person with a €300,000 tracker mortgage.
The announcement marks the first time in more than two years that tracker mortgage holders will feel the pinch of rising interest rates and it is expected to be the first of at least three rate increases over the next 12 months.
It will see the cost of mortgages climb for more than three-quarters of Irish homeowners. For every €100,000 owed on a 30-year tracker mortgage of 1.5 per cent plus the ECB rate, a quarter point increase adds about €13 on to the monthly repayments.
As a result of the ECB announcement, a person with a €300,000 tracker will see their monthly repayments rise by about €480 annually while someone with a €400,000 mortgage will have to pay a further €52.50 monthly, or €630 each year.
Speaking after the announcement was made, and using language that usually means another rate increase is in the offing, ECB president Jean-Claude Trichet said the bank would “continue to monitor very closely all developments with respect to upside risks to price stability”.
He insisted the ECB’s governing council had not decided that yesterday’s increase would be “the first in a series” but analysts suggested another rate hike is likely in June or July rather than May.
Mr Trichet also dismissed suggestions that the rate hike would increase pressure on Ireland and other so-called “periphery” euro zone states and said the decision was not intended to help or hurt any one country but to maintain price stability to benefit “directly and indirectly all 331 million citizens in the single currency area”.
“We do what we have to do even when it is difficult and not necessarily pleasing to everyone, that’s our job,” he said. Referring to peripheral countries, he said: “It is in their interests to follow their plan. They have to do what is necessary and they have the means to do so.”
Mr Trichet indicated he did not support any Irish proposals to include private bondholders as part of a rescue plan, saying that those who suggest such measures should “reflect on the confidence of the market”.
He denied that the bank’s economic policy was dictated more by the needs of Germany, the euro zone’s largest economy, than by smaller peripheral countries and said that the ECB was sticking to its rulebook and that euro zone member states should stick to the austerity plans they have agreed.
Bank of Ireland and ICS Building Society were first out of the blocks in confirming that as a result of the increases, all tracker rates will go up by the same amount from Wednesday, April 13th.
The bank and building society also announced increases to their fixed rate mortgage product range ranging from 0.7 per cent to 1.3 per cent across fixed rates for owner occupiers and buy to let customers.
RATE RISE MONTHLY INCREASE
ECB tracker mortgage of 2.25% over 30 years after rate rise
€100,000 + €12.63
€200,000 + €25.25
€250,000 + €31.57
€300,000 + €37.88
€400,000 + €52.50
Typical standard variable rate of 4.25% over 30-year loan after rate rise
€100,000 + €14.52
€200,000 + €29.05
€250,000 + €36.31
€300,000 + €43.57
€400,000 + €58.10
Report by CONOR POPE and DEREK SCALLY - Irish Times