Homeowners face higher mortgage repayments after the European Central Bank (ECB) today raised interest rates by a quarter point to a five-year high of 3.5 per cent.
Trichet
The widely expected move to contain inflation came after some of the strongest euro zone growth since the start of the decade.
The decision will mean some of the gains announced in yesterday's Budget for mortgage holders, particularly first-time buyers, will be eroded.
Brian Cowen yesterday announced a doubling of the ceiling on mortgage interest relief for first-time buyers from €4,000 to €8,000 for a single person and €8,000 to €16,000 for married or widowed persons.
A typical €300,000 mortgage will now increase by over €42 per month on a 25-year mortgage and around €46 a month on 35-year mortgage.
Green Party finance spokesman Dan Boyle said the ECB hike exposed the Government's move on mortgage interest relief as a sham.
"First time buyers today are in exactly the same financial position that they were in yesterday. The Government's moves in the budget for first-time buyers were nothing more than a cynical ploy," Mr Boyle said.
Labour finance spokeswoman Joan Burton said the rate rise meant that monthly repayments on a typical mortgage of around €300,000 had risen nearly €300 over the past 12 months.
"The cumulative effect of these increases will have been to significantly diminish whatever benefits most families might have expected to enjoy as a result of the budget decision to increase the ceiling on mortgage interest relief," Ms Burton said.
Fine Gael finance spokesman Richard Bruton said a typical new mortgage would cost €750 more annually.
He criticised the Mr Cowen'a failure to address Stamp Duty in the Budget saying it was a "serious missed opportunity".
He said Government policy favoured developers at the expense of good planning practice and young families. Mortgage repayments now represent 53 per cent of average income and as much as 75 per cent in Dublin, Mr Bruton added.
"The Government's pose as champions of the first-time buyer is like the wolf dressing in sheepskin to mind the flock," Mr Bruton said.
Today's rise is the sixth hike since December 2005, when the euro zone's economy started picking up. The recovery has been broadly sustained, with demand for credit still strong in the 12-nation zone that has more than 313 million people and a combined GDP that accounts for 14.8 per cent of the world's GDP.
And further bad news for mortgage holders is likely as ECB president Jean-Claude Trichet did not rule out further increases.
The language used in statements that follow the monthly ECB meeting is carefully coded and Mr Trichet's use of the term "monitor very closely" indicates a further rate rise is likely but not for a few months.
"The outlook for price developments remains subject to upside risks," Mr Trichet warned.
He said that economic conditions within the eurozone favoured investment becuase of ample money supply and warned that while stable growth was anticipated over the next three years, unpredicatable energy prices in particular could affect the stable inflationary environment.
"Looking ahead, acting in a firm and timely manner to ensure price stability in the medium term is warranted. The Governing Council will monitor very closely all developments so that risks to price stability over the medium term do not materialise," Mr Trichet said.
He again warned of the dangers high borrowing can have on inflation and indicated that rate rises to date had only a limited effect.
In a further signal of a likely rate rise next year - probably February or March - Mr Trichet said "improved economic conditions and continued strong property market developments in many parts of the euro area," are further inflation risks.