The cost of home loans is set to climb again following the European Central Bank’s seventh interest rate hike in less than a year prompting the Taoiseach Leo Varadkar to suggest mortgage interest relief is under consideration for the next Budget.
However while Mr Varakdar acknowledged that tens of thousands of tracker mortgage holders are substantially worse off as a result of a cumulative rate increase of 3.75 per cent since last June, he also said that cohort had benefited from rates close to zero for almost a decade.
The European Central Bank raised its interest rates by 0.25 per cent on Thursday as it continues to try bring euro zone inflation under control.
The widely anticipated rate increase takes the key ECB rate to 3.75 per cent and will add hundreds of euro on to the annual cost of a tracker mortgage.
It comes on the back of six previous rate increases which have seen the annual repayments for tens of thousands of tracker mortgage holders – the cohort most immediately impacted by ECB’s hikes – climb by thousands of euro.
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Making the announcement, the board of the ECB said the inflation outlook “continues to be too high for too long”.
It said the latest data “broadly supports” an earlier assessment which suggested inflation would fall as the year ends.
However it warned that “underlying price pressures remain strong”.
The ECB President Christine Lagarde also made it clear more rate increases were likelyi. “We have more ground to cover and we are not pausing,” she told a news conference. “That’s extremely clear.”
Mr Varadkar said the ECB had acted “to bring inflation under control and to restore price stability” which he said was “good for everyone in the round”.
He said that “any decision on reintroducing mortgage interest relief would have to be considered as part of the budget in October. So it is something we will consider.”
He warned that the tax package “can only be so big” and added while mortgage relief was “under consideration, but [I] don’t want to be misinterpreted as saying that under consideration means a promise that it will happen. I can’t promise that at this stage.”
He added that many of those who are “really feeling the brunt of the mortgage interest increases are generally people who have been on trackers, who for a prolonged period had very low interest rates and are only now in many cases only paying interest rates that other people were paying for ages. So just doing something for one group mightn’t be fair.”
The ECB increase of 0.25 per cent adds around €13 on to the monthly repayments for every €100,000 borrowed so will see the annual cost of a €300,000 mortgage, climb by roughly €600.
The news is much bleaker when all the rate increases are totted up.
Just under a year ago, tracker mortgage holders were paying rates of between 0.5 and 1.5 per cent while variable rate loans ranged from 2.25 to 4.75 per cent.
Now, the situation has been reversed with the tracker mortgage holders set to pay from 4.25 to more than 5 per cent with variable rates in Ireland largely untouched in recent months.
While the average tracker holder has an outstanding mortgage of less than €100,000, one in five, own an average of €225,000 and have 19 years left on their term.
This cohort has seen the average repayment climb from €951 per month to €1,356 and with fresh increases likely in the months ahead, repayments could reach €1,500 before the end of the year taking the annual cost for some people to close to €7,000.
Trevor Grant of the Association of Irish Mortgage Advisors (AIMA) said the latest increase “could be the straw that breaks the camel’s back for many borrowers, adding significant financial stress”.
He warned that it risked pushing “more borrowers into mortgage arrears.
Acknowledging the risk, the Minister for Finance Michael McGrath said there was a “concern” that rising interest rates could lead to an increase in mortgage arrears.
He called on mortgage lenders to use existing codes of conduct to work with borrowers to avoid home repossessions, adding that the Government will consider “all options” in autumn’s budget to help people in mortgage arrears.
