Hefty new mortgage rate hike to cost many homeowners €600 a year

Mortgage misery is set to intensify for thousands of home owners as a hefty 0.75pc interest rate hike is predicted later this week.

inancial experts now expect the European Central Bank ( ECB) to significantly increase its key lending rate at its meeting this Thursday.

It will be the third big rise in ECB rates since the summer, which in total could add €1,620 a year to the cost of a tracker mortgage taken out during the boom.

This week’s decision alone could account for €600 of that annual cost, with a fourth hike not ruled out before the end of this year.

Close to 500,000 tracker and variable rate mortgage holders will feel the heat from rising interest rates.

A survey of 60 European economists has found that most now expect a jump of 0.75 percentage points to the ECB’s deposit and refinancing rates when it meets on October 27.

The governing council of the ECB feels it has no choice but to go for another huge rise as it tries to contain inflation running at five times its target, a Reuters poll found.

Eurozone inflation has soared on the back of rocketing energy prices while supply chains still healing from the pandemic have taken a further hit from Russia’s invasion of Ukraine.

The two recent rate rises have seen a family with 15 years left and €150,000 to pay on a tracker facing an extra €84 in monthly payments.

Over a year this works out at an additional cost of €1,000.

This is for a tracker with a 1pc margin over the ECB refinancing rate.

If there is another 0.75 percentage point rise in rates it will add another €50 to the monthly costs of the mortgage. This will mean monthly tracker mortgage costs will have shot up by €135 since the summer. Over a year this works out at an extra €1,620.

And there could be another 0.5 percentage points rise in European rates at the December ECB meeting. This would take the ECB’s main refinancing rate to 2.5pc.

As many as 200,000 homeowners are on variable rates. There are 250,000 on trackers, which rise or fall when the ECB rate changes.

Joey Sheahan, of online brokers MyMortgages.ie and author of The Mortgage Coach, said the question now is whether tracker rate customers should fix.

“The answer depends on the margin of the mortgage,” said Mr Sheahan.

If the mortgage holder has a low margin, of 0.6 percentage points to 0.75 percentage points, then it could still be worth holding onto their tracker.

“However, for borrowers with higher margin trackers, of say 1.25 percentage points and above, then giving up their tracker in favour of a fixed rate should be up for consideration,” he added.

Mr Sheahan said people on trackers should take expert advice at this stage, as the steps they should or should not take will differ for each individual depending on how much they owe, the term remaining, their income and other personal factors.

The three main banks have increased tracker rates, but have yet to increase variables.

People whose mortgages were sold by the banks and are now controlled by the likes of finance group Pepper, have seen tracker and variable rates rise.

Large numbers of mortgage holders have opted to fix their rates to lock in at interest rates as low as 2.5pc. However, those trying to switch lender to get the current lower fixed rates have been frustrated by massive delays processing applications.

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