An expected increase in interest rates will not be welcome for mortgage holders but it could bring down inflation and will probably help to contain house prices, Tánaiste Leo Varadkar has said.
The Fine Gael leader was responding to the news that the European Central Bank (ECB) is expected to announce another 0.75 per cent increase in interest rates when its governing council meets on Thursday.
This would bring the main lending rate to 2 per cent - a move that will impact on hundreds of thousands of tracker mortgage holders in Ireland.
It will be the third interest rate increase this year.
Mr Varadkar said the Government does anticipate the announcement of an interest rate increase today.
He said the ECB is independent and its expected move is designed to bring inflation under control and added: “It’s tough medicine but that’s why they made that decision.”
Mr Varadkar was asked about the expected increase as he was joined by Minister for Public Expenditure Michael McGrath at the launch of the new €200 million Ukraine Enterprise Crisis Scheme.
Under the scheme there will be two streams of funding to assist viable but vulnerable firms of all sizes in the manufacturing and internationally traded services sectors whose business has been impacted by Russia’s war on Ukraine and rising energy costs.
[ Explainer: What will the expected ECB rate hike mean for your mortgage?Opens in new window ]
On the expected ECB decision Mr Varadkar said: “Obviously, it’s not going to be welcome for people borrowing and mortgage holders.
“I’m one of those people who gets that letter in the post a few days after the ECB makes a decision telling me that the mortgage has gone up.
“We absolutely understand that this isn’t good news for people who have mortgages.”
However, Mr Varadkar said the move will have other effects.
“It will help to bring down inflation for example.
“For pensioners it mean a better return on their savings.
“I do think we need to bear in mind those aspects of interest rate policy.”
He added: “It will probably also help to contain house prices and maybe even bring them down a bit for people who are buying for the first time.”
Mr Varadkar, the Enterprise Minister, said there has been a very prolonged period of low interest rates that was not normal.
“That’s now coming to an end but obviously nobody wants to see interest rates going too high at the same time,” he said.
Mr McGrath was asked if he agreed that the interest rate increase will contain house prices.
He replied: “I don’t have a crystal ball” and he said he would not speculate on the matter as “it’s such an important issue for so many people who are looking to buy or considering selling.”
Mr McGrath added: “We’ll leave those predictions to independent economists.”
He also said there are “a whole set of variables that work into how much somebody can borrow and what the price of a home is going to be.”
Asked by reporters if the interest rate increase will wipe out the cost-of-living supports and other measures aimed at helping households in the Budget, Mr McGrath said: “not necessarily”.
“It depends on individual circumstances.
“It depends on you know the amount of loan balance that’s outstanding.
“Many people, bear in mind, have signed up to fixed rate offerings... so they won’t be impacted whatsoever.”
He said he acknowledged that many people’s mortgages will go up and it will be an extra burden on them.
“That’s why the supports we announced are going to be even more important,” he said.
