ECB raises rates
European central bank raises interest rates
The European Central Bank has raised its main interest rate by .25% to 1.25%. This is the first ECb rate rise since early 2009.
The rate rise will increase mortgage repayments by approximately €15 per month per €100.000 of borrowing. A 200k mortgage will increase by €30 and a 300k by €45 etc.
Tracker rate holders will see the rate rise as part of their tracker contract. We expect the increase will also be passed onto variable rate customers,
The rate rise will not affect existing fixed rate mortgage holders.
Market speculation is that rates will move up gradually over the next two years towards a base rate of 2.75% or including today's announcement by approx 1.5% over the next two years. If this is the case, one can apply a factor of 6 to today's figures to get a feel for where repayments will be in two years time. A 300k variable rate mortgage might increase by €270 per month
The move will increase the difficulties faced by many households.
Mortgage holders should look carefully at related cost such as life insurance and home insurance to mitigate some of the increase.
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The rate rise is a measure introduced to reduce inflation in the Euro zone. The fact that Ireland is in such a weak position economically has no real influence on euro rate policy, where the prime driver of rates is the control of inflation across the entire the Eurozone.
Most lenders will probably react in a similar fashion to the news, increasing variable rates and using it also as an opportunity to increase fixed rates.
Switching may be an option in the following circumstances:
- Where the balance on your mortgage is less than 80% of the current value of your home
- You qualify on an earnings basis for a new mortgage( as a guide 4 times your current gross income)
- You have strong permanent employment
- A good credit history
For homeowners with a loan to value of 50% there are some exceptional fixed rates available (eg3.7% fixed for five years) subject to lending criteria.