ECB rate hike raises costs for almost 250,000 mortgage holders

Half-point interest rate rise will add €1,000 a year on a €300,000 mortgage, as Varadkar says banks ‘cannot have it both ways’ on rates

Almost 250,000 people will see their monthly repayments on tracker mortgages automatically rise again following a half-point interest rate increase from the European Central Bank (ECB).

Tracker-rate mortgage holders will bear the immediate brunt of the ECB’s rate hike with borrowers shouldering an increase of €25 a month for every €100,000 they have borrowed.

On a €300,000 mortgage, this would add close to €1,000 over a year. The outstanding sum left to be repaid on the average tracker mortgage stands at about €80,000, though tracker customers who encountered financial difficulties and have higher balances will face bigger repayments.

On his St Patrick’s Day visit to the US, Taoiseach Leo Varadkar said the latest rate increase was “not a surprise” but he was “very conscious” that mortgage holders faced a further increase in repayments and this was “unwelcome”.


Mr Varadkar urged the banks to increase savings rates, saying they “cannot have it both ways” and should not be raising mortgage rates if they are not also raising savings rates.

He said there were “no plans at the moment” to reintroduce mortgage interest relief to help borrowers with higher repayments, rejecting calls from Sinn Féin to apply the relief.

Mortgage advisers warned that more people would be caught by rate hikes with rising borrowing costs spreading from tracker to variable mortgage holders and those planning to fix.

“Others are increasingly being drawn into the firing line,” said Trevor Grant, chairman of the Association of Irish Mortgage Advisers.

While tracker mortgages have been “most exposed” to the hikes since July, others on variable rates and customers coming off low fixed rates faced “a shock” in the coming years, he said.

“There are about €12 billion worth of mortgages rolling off low fixed rates over the next three years and they face much higher rates in the coming 12 months or so,” said Mr Grant.

The ECB raised interest rates again, sticking with its plan to tackle inflation despite turmoil in the financial sector caused by US bank collapses and concerns over Credit Suisse.

The latest increase is the sixth hike since July, raising the ECB’s main refinancing rate that sets mortgage repayments for borrowers, from zero to 3.5 per cent. The Frankfurt-based central bank hinted at further interest rate increases aimed at reducing high inflation. However, many market-watchers are gaining a sense that the bank may soon hit pause as the inflation outlook becomes more benign and if the banking turmoil is contained.

“We are seeing some slight improvement in certain areas, but, frankly, not a lot,” said ECB president Christine Lagarde on the bank’s efforts to reduce inflation.

“We are not waning on our commitment to fight inflation and we are determined to return inflation back to 2 per cent in the medium term – that should not be doubted.”

New figures from the Central Statistics Office showed that inflation in the Irish economy rose to 8.5 per cent in February, fuelling further concerns that inflation may be more difficult to rein in.

Market commentators interpreted a suggestion from Ms Lagarde that some on the 26-person ECB governing council wanted to halt rate increases to see how the volatility in the banking sector played out as a sign that the ECB may slow further rate hikes.

The rate increases since last summer have added €1,600 a year, or a 28 per cent increase, to the cost of repaying the average tracker mortgage in just eight months, but borrowing costs are expected to rise for customers on variable rates or those planning to fix their rates.

“For the vast majority of mortgage holders, it is definitely worth investigating whether it makes sense to fix your mortgage,” said Mark Coan, founder of money adviser

Instability in the banking sector meant “the jury is still out” on the number and scale of further rate increases, he said, but he still encouraged people to check options to fix because rates could remain high in the long term given the risk of “longer term higher inflation.”

Simon Carswell

Simon Carswell

Simon Carswell is The Irish Times’s Public Affairs Editor and former Washington correspondent

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times

Martin Wall

Martin Wall

Martin Wall is Washington Correspondent of The Irish Times. He was previously industry correspondent