Hundreds of thousands of homeowners are to pay an extra €2,000 a year on their mortgage payments with two more interest rate hikes likely before the end of the year.
Oney Markets now expects the European Central Bank’s key refinancing rate to rise by 0.75 percentage points this month, with a 0.5 percentage point hike in December.
Such increases would mean repayments on a follow-on mortgage with €150,000 still to be paid will have increased by €2,000 over a full year since the summer.
Nearly half a million tracker and floating rate borrowers are vulnerable to the ECB rate hike.
Minutes from the European Central Bank’s (ECB) September meeting show that its members want to act forcefully to avoid raising rates more sharply in the future, according to an investor note from the economist in head of Davy Stockbrokers, Conall MacCoille.
Since that meeting, inflation in the euro zone has reached 10%.
Mr Mac Coille said money markets, or so-called Overnight Index Swaps, imply a rise of 0.75 percentage points at the ECB meeting on October 27 and a rise of 0.5 percentage point at the December 15 ECB meeting on euro rates. This would take the ECB rate to 2.5 pc.
“Markets see ECB rates peak at 3% in mid-2023,” Mac Coille wrote.
In July, the ECB announced a 0.5 pc increase in interest rates before raising them again to 1.25 pc last month.
The two recent rate hikes saw a family with 15 years remaining and €150,000 to pay on a tracker facing €84 in additional monthly payments.
Over one year, this represents an additional cost of €1,000. It is a tracker with a margin of 1 pc on the ECB refinancing rate.
If there are similar ECB rate hikes this month and in December, that means this family will end up with monthly repayments up €170 since the summer.
Over a full year, this means that the cost of reimbursements on this tracker will have increased by €2,000.
The three major banks have increased tracker rates, but have not yet increased variables. AIB, which has the largest floating rate book and lower floating rates than Bank of Ireland or Permanent TSB, may raise floating rates first.
People whose mortgages have been sold by the banks and are now controlled by the likes of Pepper, have seen trailing rates and variable rates go up.
Pepper manages 60,000 mortgages sold to vultures by banks, but these borrowers are unable to set their rates if their mortgage has been sold.
Non-bank lender ICS Mortgages has hiked lending rates three times this year, with Finance Ireland rates rising twice, by up to 2 percentage points in the latest decision. Before Money raised rates twice.
A large number of mortgage holders have chosen to set their rates to lock in interest rates as low as 2.25%. However, those trying to switch lenders to get the current lower fixed rates have been frustrated by massive delays in processing applications.
It takes up to four months to get to the mortgage drawdown point, raising fears that rates may have risen in the meantime. The rate a borrower gets is not the rate they were approved for at the start of the change process, but the rate at the time of the drawdown.
The Central Bank has said it does not intend to force lenders to honor rates at the time of mortgage approval in principle.
And those who fear their tracker is getting too expensive have been asked to pay for independent advice from a broker.
People with existing fixed rates that have since become expensive can choose to get a more competitive rate from the same lender by requesting that rate. Most lenders do not charge breakage fees.
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