ECB rate hike could see mortgage holders pay an extra €1,000 a year

Christine Lagarde, president of the European Central Bank, which is set to unveil its first interest rate rise in over a decade. Irish experts are calling on banks not to pass the cost on to mortgage holders. File picture: Daniel Roland/AFP/Getty

Pressure is mounting on AIB, Bank of Ireland, and Permanent TSB to defer passing on the costs to mortgage holders as the ECB prepares to unveil its first interest rate increases in over a decade.

Thursday’s ECB hike could immediately add almost €1,000 to the annual mortgage cost for around 450,000 Irish tracker and variable rate borrowers, if the central bank were to hike official rates by as much as half a percent.

There is no escaping the rate hikes for 280,000 households on tracker mortgages, because their home loan agreements stipulate their interest costs rise or fall in line with ECB rate moves.

However, experts said that the dominant mortgage banks have adequate resources to absorb ECB rate increases on behalf of the 175,000 mortgage accounts paying out on variable rate mortgages.

Senior broker Michael Dowling said rate hikes by the ECB by the end of the summer could add as much as €120 to the monthly cost, and almost €1,500 for a full year, for households with a €300,000 mortgage.

“Based on variable rates in the market, they definitely have the fat to absorb rate increases,” Mr Dowling said, pointing to the huge market share the three lenders will gain from the exit of rivals Ulster and KBC.

From a moral viewpoint, we would be saying to the banks would they not give some respite to customers bearing in mind that inflation is at 9.1%, the highest in 40 years.

Brendan Burgess, an advocate for customers, said Irish banks charge among the most expensive mortgages in Europe and it would be “outrageous” to increase variable interest rates further.

Paul Joyce, a senior policy adviser at the Free Legal Advice Centres (Flac) said mortgage arrears could rise depending on the extent of ECB rate increases.

Meanwhile, Austin Hughes, chief economist at KBC Bank, said the latest household survey showed a sharp fall in consumer confidence this month. 

“The weather may be warmer, but the economic skies are getting darker for Irish consumers,” Mr Hughes said.