Irish mortgage arrears will 'inevitably' rise as ECB pledges more interest rate hikes

Core price pressures moderated by less, meaning there is probably still at least one more hike to come to ensure the 2% inflation target is reached

European Central Bank president Christine Lagarde said it was not yet apparent core inflation has peaked in the eurozone, pledging further increases in borrowing costs.

A veteran of the Irish mortgage business has warned home loan arrears will "inevitably" rise in the coming months as the European Central Bank doubles down on its hawkish stance over interest rates. 

Michael Dowling, who has held senior positions in the industry for over 20 years, said Irish banks have yet to pass onto their mortgage borrowers the full extent of increases in official rates since the European Central Bank started out on its cycle of rate hikes last July. 

Warning the ECB would likely announce two further increases of a quarter point each at its two meetings starting from June 15, Mr Dowling said tracker mortgage borrowers had felt the full impact, but the full implications of rate increases on household finances from earlier hikes were still unknown for many other mortgage customers.

It was all but "inevitable" that households would "get into trouble" and miss paying their monthly mortgage payments, as Irish banks pass on the rate hikes to fixed-rate borrowers. "The mortgage arrears figures will be watched closely," he said.

The warning comes after the ECB president Christine Lagarde appeared to double down on the central bank's previous warnings that its battle against inflation was not yet done and interest rates have not yet reached their peak, despite Eurostat figures showing a marked slowdown in the pace of inflation across most of the eurozone.

But it is not yet apparent core inflation has peaked in the eurozone, Ms Lagarde said, pledging further increases in borrowing costs.

“There is no clear evidence that underlying inflation has peaked,” she said in a speech in Hanover, Germany. 

We have made clear that we still have ground to cover to bring interest rates to sufficiently restrictive levels.”

The data showed inflation in the 20-nation eurozone slowed markedly last month — reinforcing the idea that the toughest monetary-tightening campaign of the euro era could soon draw to a close. 

Core price pressures, however, moderated by less, meaning there is probably still at least one more hike to come to ensure the 2% inflation target is reached.

Speaking earlier this week, ECB vice-president Luis de Guindos warmed he “could not say that the victory is there so far”. Fellow rate-setter Madis Muller had said more than one additional quarter-point rate move is likely. 

Ms Lagarde said officials are not satisfied with the inflation outlook but that monetary policy is being transmitted “forcefully” to credit, with the action taken to date to still have a significant impact.

“These hikes are already feeding forcefully into bank lending conditions,” she said. “And we know that — having hiked so far and so fast — considerable tightening is still in the pipeline.” 

• Irish Examiner. Additional reporting Bloomberg