ECB set to raise interest rates from next month

MORTGAGE holders should prepare for higher costs after the European Central Bank signaled a policy change that is expected to affect those with variable rates and trailing rates.

he European Central Bank (ECB) is preparing to raise its key refinancing rate in July and then in September.

Two increases of 0.25 pc have been announced, but a rise of 0.50 pc in September could be put in place if high inflation persists.

This is likely to impact some 450,000 people with a tracker or variable rate. And that will mean that future fixed rates will become more expensive.

Every 0.25pc hike in ECB rates will cost €30 more in monthly repayments for a €250,000 tracker mortgage.

This amounts to €360 per year. This is based on a tracker with a margin of 1.25pc over the ECB rate, with 20 years left to pay.

If rates increase by 0.5pc, it will cost this mortgage holder an additional €720 per year in repayments.

The ECB has announced that it will end its bond buying program from 1 July.

This is seen as the first step before interest rates are raised later this summer.

The ECB also announced that it would raise interest rates by 0.25 pc at its next meeting in July.

In the meantime, it left its interest rates unchanged.

KBC Bank economist Austin Hughes said the announcements marked the start of a string of rate hikes.

Competition between lenders can mean that variable rates are not increased by all lenders.

But most are likely to push up mortgage rates to reflect the ECB’s higher refinancing rate.

There has been mixed news on mortgage rates recently.

Permanent TSB, Bank of Ireland and EBS have all recently cut some of their rates.

But ICS Mortgages has raised rates twice in recent weeks, and Avant Money raised some of its rates last month.

It comes a day after the Central Bank of Ireland reported that mortgage rates in that country reversed trend by falling in April.

Average rates for new buyers and money changers have fallen

slightly to 2.77% in April.

This is down slightly from 2.78% in March.

This means that this country has the second highest mortgage rates in the eurozone, according to the Central Bank of Ireland.

The average interest rate on a new mortgage in Ireland is second only to Greece in the euro zone of 19 countries.

But mortgage holders have been warned that the European Central Bank is likely to signal at a meeting of its Governing Council on Thursday that it is set to reverse a decade-long policy and start increasing its key rate.

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