What will the ECB interest rate hike mean for your mortgage? – The Irish Times

Homeowners are bracing for a further increase in monthly mortgage repayments as the European Central Bank’s (ECB) Governing Council meets on Thursday.

Eurozone bond market rates, or yields, fell on Wednesday as investors gauged the likelihood of the ECB raising its key rate by 75 basis points (three-quarters of a percentage point).

The ECB, which raised its interest rate by half a percentage point in July, is set to make a second sharp rate hike this week as it tries to rein in record inflation while ending pressures on prices and to the recession of Russian energy supply fans. fears in the block.

While the markets had predicted a greater than 90% chance that the magnitude of this rise would be 75 basis points earlier this week, they lowered those bets on Tuesday in reaction to several press articles, including one announcing a rise in prices. half point rate. remained on the table.

“The bottom line is that the decision remains open and even the ECB council members themselves probably can’t guess what the outcome will be,” said Christoph Rieger, head of rates and credit research at the Commerzbank in Frankfurt.

But what will this mean for Irish mortgage holders?

Joey Sheahan, credit manager at online brokerage mymortgages.ie, says that depending on the type of mortgage and the remaining term, homeowners could face increases of €22 to €28 per month in their repayments for each €100,000 remaining on their mortgage in the event of a half point increase in the current ECB rate from 0.5% to 1%.

This would increase to €34-42 if the ECB instead opts for a three-quarters percentage point increase.

per €100,000 of outstanding mortgage Current monthly repayment 0.5% increase 0.75% increase 1% increase
Tracker – one % point above the ECB with 15 years remaining €620.74 €643.51
*Standard variable 3.75% with 15 years remaining €727.22 €752.28
*Standard variable 3.75% with 25 years remaining €514.13 €541.74
** Fixed 5 years 2.5% with 25 years remaining in the event of a rate hike €448.62 €474.21
* Based on average SVR in June 2022: Central Bank
** Average 5-year fixed rate for the month of June: Central Bank
Source: Joey Sheahan, Credit Manager at online brokerage MyMortgages.ie

So a half-point hike on a 15-year variable rate mortgage of €350,000 would take repayments from €2,172.59 per month to €2,252.29, an increase of €79.70. €.

If the rate jumps by three-quarters of a percentage point, monthly repayments would be €120.19 higher to €2,292.78.

The impact of the increases would be most dramatic for those with standard variable rate loans, while banks would also likely raise interest rates for anyone looking to fix their mortgage rate in the future.

While the three Irish retail banks still in the market each decided not to raise variable and fixed rates following the ECB’s July increase, non-bank lenders Avant Money and ICS Mortgages increased the cost of some products, reflecting the fact that they are more dependent on market funding than banks.

Davy analyst Diarmaid Sheridan said that if the ECB opts for a 75 basis point increase on Thursday, “banks may have to revise their mortgage prices as some of their own funding costs will start to rise.”

“But they are unlikely to pass on all of the ECB rate hikes,” he said. “Banks are less likely to raise rates in the event the ECB raises rates by 50 basis points. The main thing will be any guidance from the ECB on where interest rates will go in the coming months. At the moment, banks are not paying interest on deposits, but at some point they will be pressured to pay interest, even if they continue to be flooded with excess deposits.

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There is a wide range of views on interest rates within the ECB’s Governing Council, with the bank’s chief economist, Irishman Philip Lane, preferring a slow and steady approach that would indicate the bank raises rates by a quarter point each time. However, recent data makes that unlikely this week, and some members of the Governing Council strongly believe a three-quarter point hike is needed, with commentators outside the bank even raising the argument for a full hike. by one percentage point.

Trevor Grant, chairman of the Association of Irish Mortgage Advisors, said the pace at which homeowners are switching to fixed-rate mortgages has increased in recent months amid heightened concerns about the direction of official rates in the ECB.

“We expect the number of people looking to ditch standard variable rates, some trailing rates, and even some existing fixed rate contracts with relatively short expiration periods to increase exponentially over the week and down. coming months,” he said. — Additional reports: Reuters

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