Hundreds of thousands of mortgage holders could face an increase of up to €300 a month in their payments as interest rates begin to rise from this summer, experts warn.
The European Central Bank is preparing to raise interest rates for the first time in more than a decade, with the first 0.25% hike likely to come in July.
The chief economist of the European Central Bank, Philip Lane, warned yesterday that a “sequence” of interest rate hikes in Europe is coming.
“I think it’s clear that at some point we’re going to move rates, not just once, but over time, in a sequence.”
While Mr. Lane would not be drawn when the ECB’s first rate hike happened, board member Isabel Schnabel defended a move as early as July. This would mean an increase in monthly payments for Ireland’s 722,000 family homes and 88,000 buy-to-let mortgage holders who are already feeling the pressure of rising energy costs.
Experts here are warning that the expected 0.25% increase in July will be followed by another 0.25% increase before the end of the year, adding to the pressure on homeowners.
By 2024, it is forecast that rates could increase by at least 2.5%.
“We are facing an inflationary environment that we haven’t seen in decades,” warned Goodbody chief economist Dermot O’Leary.
“Rates will go higher than our current expectations, rather than stay lower.”
The markets bet on hikes of a quarter point by the ECB in September, December, January and March.
Inflation is currently at 6.7% and is at its highest point in 22 years, but it is expected to rise further, with some experts predicting it to rise to 8% in the coming months.
Rising inflation is hitting consumers hard, and cost-of-living increases are being felt across the board, especially in fuel prices, home heating, and food staples.
Mortgage specialist Michael Dowling of Dowling Financial also believes interest rates will rise 0.25% initially and incrementally. He expects the increases to amount to 1.5% in the next two years.
He said a one percentage point increase in interest rates on a €250,000 tracker mortgage over a 30-year term would cause the current payment of €804 a month to rise to €924, an increase of €120 a month.
With 200,000 variable rate customers, paying an average of 3.75%, an increase of one percentage point on a €250,000 mortgage would increase the current monthly payments of €1,158 to €1,304, an increase of €146.
This is a more optimistic picture than that of Mr. O’Leary, whose prediction of a 2.5% interest rate increase by 2024 would see some homeowners’ monthly payments increase by €300.
Dowling is advising borrowers, even those with trackers, to switch to long-term fixed rates.
But, he warned, borrowers have a short window to act.
“Right now, almost all 10- to 30-year fixed rates, depending on loan-to-value, are below 3%,” he said.
“If ever there was a good time to switch to a long-term, fixed-rate mortgage, it’s now. Not only will you have peace of mind in these uncertain times, but you’ll also save yourself a small fortune.”
The announcement of a “sequence” of hikes by the ECB follows the US Federal Reserve on Wednesday, which stepped up its fight against the worst inflation in 40 years by raising its benchmark short-term interest rate in half percentage point, its most aggressive move since 2000. .
The increase in the key Fed rate took it to a range of 0.75% to 1%, the highest point since the pandemic hit two years ago.
At the same time, the Bank of England sent a stern warning that Britain risks both a recession and inflation above 10% as it raised interest rates to their highest level since 2009, raising a quarter point at 1%.