Tracker mortgage relief as ECB holds interest rates at 1%

TRACKER mortgage customers were again given a reprieve from rising interest rates yesterday with the European Central Bank (ECB) holding rates at the record low 1%.

Chief economist for the Ernst & Young Eurozone Forecast (EEF), Marie Diron said she does not expect any ECB rate increase before mid-2011 at the earliest.

Mortgage holders on variable rates are facing a raft of interest rate hikes with many lenders having already increased rates and others expected to follow soon.

Head of research with Savills, Joan Henry, said there is no economic or inflationary justification for interest rates to increase, adding that such moves are purely being used as a “cash collection exercise by the Irish banks, who are using unchanged ECB rates as an opportunity to squeeze variable rate holders”.

“We would strongly hope this will be the last independent rate rise by the Irish banks for the foreseeable future, as another could, and will, financially cripple Irish homeowners,” she said.

Ms Henry said that from a more overall property market perspective the banks strategy of using variable rate mortgage rate holders to raise capital will have a wholly negative impact on the property market.

“Higher interest rates independent of the ECB is bad news for the property market at a time when house prices have adjusted downwards to levels seen almost a decade ago, which in fact presents a great opportunity for first-time buyers and those who may want to trade up or down.

“However the situation we are faced with now means that those currently in the market and on fixed rates will be limited in their choices to trade up or down and those considering entering the market will be discouraged due to the uncertainty over the SVR they may be offered from the lender,” she said.

ECB president, Jean-Claude Trichet said that third-quarter eurozone economic data has been surprisingly strong so far.

However the ECB still expects the bloc’s economic recovery to be moderate and uneven.

“The available economic data and survey-based indicators suggest a strengthening in the economic activity in the second quarter of 2010 and the available data for the third quarter are better than expected,” Mr Trichet said.

“Looking further ahead ... we continue to expect the euro area economy to grow at a moderate and still uneven pace in an environment of uncertainty,” he said.

“The decision to keep rates on hold was an obvious one,” said JP Morgan economist David Mackie.

“We don’t have a rate rise in our forecast horizon, and our horizon goes to the end of 2011.”

ECB watchers were hoping Trichet might give an early hint on whether banks would continue to have access to unlimited ECB cash for the rest of the year, past the current deadline of October.

But he said only that the bank would make a decision next month on any further moves to unwind the extra liquidity it has been pumping into money markets and would do what is needed.