Trackers on €300k mortgage face €7,000 payments pain

Managing Director of mortgage broker Dowling Financial, Michael Dowling, also cited eurozone inflation forecasts that suggest the ECB could keep rates higher for longer, piling on the financial pain for households. 

Tracker mortgage households could be facing an additional €7,000 in annual payments if the European Central Bank carries through in its threat to step up its fight against inflation, experts have said. 

The warnings come after market participants said on Friday that the ECB could hike interest rates much higher than once thought — a day after president Christine Lagarde said the central bank was prepared for more significant rate increases to come. 

This week's move was the fourth rate increase and brought the cumulative increases to 2.5% since the ECB started hiking in July. Expectations have since increased that the ECB will hike rates a further 1% by next summer, imposing more financial pain on mortgage holders.

There are around 300,000 Irish households on tracker mortgages who are immediately affected because their monthly payments automatically rise when the ECB moves its official rates higher.

Senior mortgage broker Michael Dowling said that expectations of a further 1% increase, which comes on top of the 2.5% in hikes already made by the ECB, means tracker mortgage holders here could be paying €7,000 more in annual payments. Such calculations are based on a €300,000 mortgage loan. 

He also cited eurozone inflation forecasts that suggest the ECB could keep rates higher for longer, piling on the financial pain for households. 

Stephen Hamilton at MortgageLine also warned about the the high costs facing tracker customers should the ECB increase rates by a further 1% by next summer. He said that the latest half-point hike announced by the ECB on Thursday showed that the ECB hands "are tied". 

“Central banks across the world are battling with double-digit inflation and well above their 2% target. There is a limit to how high rates will go but they will unfortunately keep increasing until inflation starts to come down,” Mr Hamilton said. 

Mr Hamilton said that, while the ECB had slowed the pace of rate increases, "inflation still remains stubbornly high”. Markets reacted to Ms Lagarde’s aggressive tone on Thursday by betting on a higher peak for borrowing costs. 

The financial bets currently see the ECB’s deposit rate reaching 3.35% by September — up from 2% now. In the wake of Ms Lagarde’s remarks, analysts, too, rushed to upgrade their predictions for the rate path and its end point. One sees it finishing as high as 4%.

Indications that the recession likely already underway in the eurozone will be softer than initially feared are feeding calls to forge ahead with interest-rate hikes targeting double-digit inflation. Surveys of December business activity in the eurozone and Germany painted a more optimistic picture than analysts had anticipated. 

“Policy rates will have to rise substantially at a steady pace to ensure a timely return to the 2% target in the medium term,” Finnish central bank chief Olli Rehn told reporters on Friday. That probably means half-point hikes at each of the next two meetings in February and March, he said. “We will do whatever it takes for inflation to stabilize” at the target. 

Additional reporting Bloomberg