Three more rate hikes on the horizon

HOMEOWNERS could be hit with further interest rate hikes later this year, followed by two more next year.

The European Central Bank (ECB) hiked interest rates by 0.25% to 1.5% yesterday — increasing monthly repayments by around €15 for every €100,000 borrowed.

Those on tracker rate mortgages will see their repayments increase immediately, while those on standard variable rate loans could also see rates rise.

ECB president Jean Claude Trichet said the ECB will continue to monitor “very closely” all developments with respect to upside risks to price stability.

Economists said the use of that phrase suggested a further rate rise in 2011, likely to be in October. They also expect two quarter-point increases next year.

Rachel Doyle, director at the Professional Insurance Brokers Association, said that for those already struggling to make repayments on their mortgage these increases may push them into arrears.

“It is also expected that many lenders will add a further margin in the immediate future to cover the increased cost of borrowing,” she said.

“The ECB increase is part of an upward cycle. While it remains to be seen how quickly that cycle will move, we could see a further quarter percent increase before the end of the year.”

She advised those on variable rates to “consider fixing for periods of five years or longer”.

Frank Conway, director of the Irish Mortgage Corporation, said monthly repayments for standard variable rate customers now cost, on average, about 2% more than for tracker mortgage customers.

Some economists expressed concerns that the rate rise could intensify Europe’s debt crisis and worsen the two-track recovery in the eurozone.

Picture: ECB president Jean Claude Trichet

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