The European Central Bank (ECB) is expected to hike interest rates for the second time this year in July. A 0.25% rise would mean an extra €45 per month in repayments for a homeowner on a €300,000 mortgage.
Director of the Irish Mortgage Corporation Frank Conway said as many as 624,000 mortgage holders in Ireland could be sensitive to rate increases as they would hold either tracker or standard variable loans.
Based on the latest statistics from the Irish Central Bank, almost 50,000 mortgage holders are in arrears on their monthly repayments and an additional 36,600 mortgage holders have had their monthly payment arrangements restructured by various lenders.
“Rising arrears in Ireland may be recognised by the ECB but are unlikely to ever sway the decisions of the Governing Council. Containing inflation is the primary task of the bank,” said Mr Conway.
ECB president Jean-Claude Trichet said yesterday that the bank was in a mode where it might increase interest rates next month.
He used the words “strong vigilance” which commentators say is the language used by Mr Trichet to signal a rate rise the following month. He did say the ECB was not signalling any particular pace on future interest rate moves.
Director of the Professional Insurance Brokers Association, Rachel Doyle, said the indications are that there could be two quarter percent increases before the end of the year.
“When the ECB rate does move upwards again holders of tracker mortgages are likely to be hit on the double with the ECB rate and an additional margin by Irish lenders,” she said.
“That, combined with the already surging variable rates, will put severe pressure on those on the margins. Given that there is no abatement in unemployment it will give rise to an increase in repossessions.”
Ms Doyle advised those on variable rates to consider fixing for periods of five years or longer “provided they get one of the fast-disappearing good value rates.”
However, in a move that could signal that rates won’t rise as quickly as some believe, Mr Trichet said the ECB hadn’t raised its 2012 inflation forecast from 1.7%.
The ECB’s monetary policy “remains accommodative”, Mr Trichet said.
“We are not pre-committed. We decide on interest rates when we judge it is necessary to deliver price stability.”
He also reiterated the bank’s opposition to letting Greece restructure its debts. The bank also said it would continue offering unlimited amounts of credit to banks “for as long as necessary”.