ECB rates hike could help reduce house prices, says Varadkar

The European Central Bank is likely to announce another 0.75% increase in interest rates later today

Public Expenditure Minister Michael McGrath was more cautious in his remarks when asked if he believed the interest rates would lead to house prices falling.

Tanáiste Leo Varadkar has said the expected hike in mortgage rates could help “contain” or bring down house prices in Ireland.

The European Central Bank (ECB) on Thursday made another hike in interest rates adding 0.75% to its base rate. The rate hike, the third this year, will add further pain to homeowners already dealing with rising energy prices and grocery bills.

There are approximately 400,000 households in Ireland with tracker and variable rate mortgages who will be most exposed to any rate rise announced today.

Mr Varadkar said he understands the news is not good news for people who have mortgages but claims it will have other effects.

He said: “But it will have other effects. It will help to bring down inflation, for example. For pensioners, it will mean a better return on their savings.

Leo Varadkar: “We have a very prolonged period of very low interest rates. That wasn’t normal and that has now come to an end.” 

“I do think we need to bear in mind that aspects of interest rate policy will probably also help to contain house prices and maybe even bring them down for people that are buying for the first time.

“We have a very prolonged period of very low interest rates. That wasn’t normal and that has now come to an end.” 

Public Expenditure Minister Michael McGrath was more cautious in his remarks when asked if he believed the interest rates would lead to house prices falling.

He said he did not have a “crystal ball” and he would not speculate on what direction house prices will go.

He said: “I’m not going to speculate on what direction house prices will go because it’s such an important issue for so many people who are looking to buy and considering selling.” 

Mr McGrath added that the Government acknowledged there would now be additional pressure on households with tracker mortgages, saying that once-off supports announced in Budget 2023 would be “even more important”.