An expected increase in interest rates will not be welcome for mortgage holders, but it could lower inflation and will likely help contain property prices, said Tánaiste Leo Varadkar.
The Fine Gael leader was reacting to news that the European Central Bank (ECB) is set to announce a further 0.75% increase in interest rates at its Governing Council meeting on Thursday.
This would bring the principal lending rate to 2% – a move that will impact hundreds of thousands of mortgage holders in Ireland.
This will be the third interest rate increase this year.
Mr. Varadkar said the government anticipates an interest rate hike announcement today.
He said the ECB is independent and its expected decision is designed to keep inflation in check and added: “It’s tough medicine, but that’s why they made this decision.”
Mr Varadkar was asked about the expected increase as he was joined by Public Expenditure Minister Michael McGrath at the launch of Ukraine’s new €200million business crisis package.
Under this program, there will be two streams of funding to help viable but vulnerable businesses of all sizes in the internationally traded manufacturing and services sectors whose operations have been affected by war. of Russia against Ukraine and rising energy costs.
On the expected ECB decision, Mr Varadkar said: “Obviously this will not be welcome for borrowers and mortgage holders.
“I am one of those people who receives this letter in the post a few days after the ECB has taken a decision informing me that the mortgage has increased.
“We fully understand that this is not good news for people with mortgages.”
However, Mr Varadkar said the move would have other effects.
“It will help bring down inflation, for example.
“For retirees, this means a better return on their savings.
“I think we have to keep those aspects of interest rate policy in mind.”
He added: ‘It will probably also help contain house prices and maybe even bring them down a bit for first-time buyers.’
Mr Varadkar, the Minister for Enterprise, said there had been a very prolonged period of low interest rates which was not normal.
“It’s now coming to an end, but obviously nobody wants to see interest rates go too high at the same time,” he said.
Mr. McGrath was asked if he agreed that rising interest rates would contain property prices.
He replied, “I don’t have a crystal ball” and he said he wouldn’t speculate on the matter because “it’s such an important question for so many people looking to buy or considering selling. “.
Mr McGrath added: ‘We will leave those predictions to independent economists.
He also said that there is “a whole set of variables that determine how much someone can borrow and how much a house will cost.”
Asked by reporters whether raising interest rates will eliminate cost-of-living aids and other measures to help households in the budget, Mr McGrath replied: “not necessarily”.
“It depends on individual circumstances.
“It depends on your knowledge of the amount of the loan balance that is outstanding.
“A lot of people, keep in mind, have been on fixed rate plans…so they won’t be impacted at all.”
He said he recognized that many people’s mortgages would go up and it would be an additional burden for them.
“That’s why the endorsements we’ve announced are going to be even bigger,” he said.