Homeowners could pay €6k more a year as ECB set to issue further interest rate hikes

European Central Bank chief economist Philip Lane has signalled that more interest rate rises are on the way. File picture

Homeowners are facing a bleak summer of interest rate increases as the European Central Bank (ECB) is expected to hike rates multiple times in the coming months in a bid to tackle stubbornly high inflation.

Customers may have been anticipating a further rate hike next week following another meeting of the ECB.

However, several more increases are now expected, with the potential to bring mortgage rates in Ireland above 5% by the end of the year. This means mortgage holders whose fixed-rate terms are due to expire could be facing as much as €6,000 per annum more in their repayments.

Trevor Grant, chairman of the Association of Irish Mortgage Advisors, said many customers had been expecting an increase of 0.5% next week, followed by another 0.25% rise but now a “prolonged series of increases” seems likely.

Doddl.ie MD Martina Hennessy said ECB rate hikes are likely to come 'hard and fast' through the year, with an immediate impact on tracker customers. File picture: Conor McCabe

Next week, the ECB is expected to increase interest rates by 0.5%, bringing the cumulative increase since last July to 3.5%. In the following months, three hikes of 0.25% are also expected, a Bloomberg survey of economists found.

ECB chief economist Philip Lane has already signalled that more interest rate hikes are likely in the coming months.

There are an estimated 50,000 homeowners whose fixed rates are due to expire in the next three years.

Those who fixed their rate at 2.5%, on the average mortgage in the past five years of €253,950, could soon be facing fixed rates of up to 5.95%, costing an extra €5,870 per annum.

Mortgage-holders are being advised to keep their policies under “constant review” in order to save money, with tracker and variable-rate customers in particular advised to consider all their options.

Martina Hennessy, managing director of mortgage-switching company Doddl.ie, said the rate increases from the ECB are likely to come “hard and fast” through the year, with an immediate impact on tracker customers. She said: 

We’re at 3% now. We were at 0% this time last year. That already means about €150 per month for every €100,000 you owe.

“If that continues into 2023, it is a really difficult one for tracker mortgage holders.”

There are more than 200,000 people on tracker mortgages in Ireland who face immediate rate hikes following the decisions made by the ECB.

Association of Irish Mortgage Advisors chairman Trevor Grant said it is a “worrying time” for people on tracker mortgages, with many considering whether they should switch to a fixed rate.

However, he warned that they might be giving up their tracker for good if they decide to do so.

“While logic tells us that those increases, a good number of them, will probably start to be reversed in maybe nine or 12 months’ time, that is a long time to be exposed to a very high interest rate that keeps increasing every month,” he said.

AIMA chairman Trevor Grant said rate rises are likely to reverse within a year — but that's a very long time to be exposed to elevated rates. File picture: AffinityAdvisors.ie 

Mortgage holders who are on variable rates have been advised to try and get a fixed rate soon because variable rates can be increased overnight by banks.

Customers on fixed rates potentially have the option to break the term early and seek a new fixed-rate term rather than wait and see what increases could be ahead. Joey Sheahan, head of credit and online banking at MyMortgages.ie, said people should be keeping their mortgages under “constant review”.

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He said they are seeing an increase in people looking to switch and he advised people to take control of their mortgage rates.

Inflation in the eurozone stood at 8.5% in February and at 8% in Ireland.

New mortgage interest rates in Ireland increased to 2.93% in January, according to the latest Central Bank statistics — the highest level in three years — and are only expected to increase further.