5 tracker mortgage rate rises loom

TRACKER mortgage holders could be hit with up to five interest rate hikes by the end of next year — adding €150 a month to a €200,000 mortgage.

Economists are expecting the European Central Bank (ECB) to hike rates by the end of this year, with some saying the first increase could come in September.

A lot will depend on the state of the economy but once the ECB begin raising interest rates then they usually hike by 0.25% every three months.

Ulster Bank chief economist, Simon Barry said the European economy is in recovery mode and any moves on interest rates will depend on how the future direction of the economy.

“A rate hike could come later this year or even sooner,” he said.

ECB president, Jean Claude Trichet usually signals a hike is on the way a few months beforehand and the words to look out for, according to experts is “strong vigilance”.

Operations manager with the Irish Mortgage Brokers, Karl Deeter said the increase in rates will bring pain to a lot of people who have been exempt from the variable rate hikes.

Managing director at Treasury Solutions, John Finn said the ECB will raise rates due to the strength of the economies like Germany, which will hit countries which are not performing as economically well.

Mr Finn said the effect of rate rises will be to increase interest paid on mortgages by Irish borrowers by €75m in 2011, over €1 billion in 2012 and almost €2.5bn in 2013.

He said the higher costs of mortgages will result in reduced disposable income, reduced consumer spending and reduced economic growth.

Each quarter point increase raises the cost of a mortgage repayment by €15 for each €100,000 borrowed.

Director of the Irish Mortgage Corporation, Frank Conway said: “As far as timing, the earliest we could expect a move would be September, but this really depends on whether or not large economies such as Germany continue to expand or inflation begins to pick up.

“At this point, signs are that the ingredients are there for a rate rise.”

Chief executive of the Irish Brokers Association, Ciaran Phelan said: “Once ECB rates increase this will, for the first time, put pressure on tracker mortgage holders who to date have been spared the increases applied by the domestic banks.”

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