Irish households likely to pay €80 more per month as ECB plans to raise mortgage rates

Up to 740,000 Irish households could pay an average of €960 more per year if the European Central Bank raises interest rates by half of a point

Already hard-pressed Irish families could end up paying an average of €2,000 extra per year to repay their mortgages if the ECB raises rates by a full percentage point. Stock picture

A momentous gathering of the European Central Bank (ECB) on Thursday will start the countdown for rate hikes that will likely add €80 a month to the mortgage repayments for up to 740,000 Irish households.

At its meeting in Frankfurt, the ECB is expected to roll back much of its huge bond-buying support programme and pave the way for the first of two summer rate hikes  — in July and September — in moves that will likely add significantly to the costs of Irish borrowers.

Experts warn that energy and food price increases driven by the war in Ukraine may force the ECB to raise interest rates higher and faster than previously expected.

Mortgage adviser Michael Dowling said that two ECB rate hikes over the summer, leading to a half a point increase in mortgage rates, would add €80 a month, or €960 for the full year, to the cost of households servicing a mortgage.

An increase of 1% in mortgage rates would add almost €2,000 in a full year for a €300,000 mortgage loan, Mr Dowling said.

Some 460,000 home loan borrowers on variable and tracker rates would be the first to be hit but all 740,000 residential mortgage borrowers in Ireland would in time pay more, as borrowers on short-term fixed mortgage rates revert to higher borrowing costs.

Financial markets were yesterday betting on even larger ECB rate hikes, helping to push up the market cost of borrowing for eurozone governments, including that of Ireland. 

Brendan Burgess, founder of the Askaboutmoney website, said many borrowers on expensive variable rates could achieve significant savings by switching and fixing to long-term mortgage rates.