ECB keeps interest rates at record low of 1%

HOMEOWNERS on tracker mortgages will not see interest rate increases until at least the middle of next year but others could be hit by hikes sooner.

The European Central Bank (ECB) kept interest rates at a record low of 1% yesterday.

Director of the Mortgage Finance Company, Kevin McNerney said the next rate hike may not be until the end of next year.

However, he expects banks to push ahead with their own rate increases once the NAMA bill is through.

“We saw earlier this year that Permanent TSB increased rates by 0.5% at a time when the ECB was saying it would be holding rates for the medium term,” he said.

ECB governor Jean-Claude Trichet said there will be a “bumpy road” ahead and any exit from extraordinary measures will be “gradual”.

“The Governing Council will make sure that the extraordinary liquidity measures taken are phased out in a timely and gradual fashion and that the liquidity provided is absorbed in order to counter effectively any threat to price stability over the medium to longer term,” he said.

Director of the Irish Mortgage Corporation, Frank Conway said at this point, it appears that the ECB is unlikely to do anything with interest rates before early to mid-2010.

“While there is now increasing levels of economic growth within the Eurozone, the ECB is very reluctant to scupper the fledgling economic recovery with higher borrowing costs,” he said.

But Mr Conway warned that homeowners on standard variable rates could see their mortgage costs increase if banks decide to hike rates.

“Banks retain the right to increase and decrease the rate of interest they charge all standard variable rate mortgage holders.

“Consumers on tracker mortgages cannot have their interest rates changed except in response to moves announced by the ECB,” he said.

The Professional Insurance Brokers Association (PIBA) said mortgage holders on variable rates should now consider fixing.

Director at PIBA, Rachel Doyle said: “Even if the ECB rate does not increase, it is likely that lenders will move on their variable rates in 2010.”