Rising interest rates
Good news on interest rates this week then?Eh, no. The news is anything but good. On Thursday the European Central Bank (ECB) announced that it was increasing its key interest rate by a quarter of a percentage point, the second such increase in three months.
A quarter of one per cent?That doesn't sound so bad? Oh but it is. While it may be small in percentage terms, the rate increase means that the average Irish tracker mortgage holder will now have to find an extra €500 over the course of the next 12 months to pay their mortgage.
When the April rate increase is included, many of those with tracker mortgages are going to be worse off to the tune of almost €1,000 a year. And that’s after tax, which means that many people will see almost twice that much knocked off their gross incomes just to cover the rate hikes.
That's the end of it, right?Right? Um. No. The president of the ECB, Jean-Claude Trichet, plays a hilarious little game with people at every press conference he attends. Instead of saying what he actually means, he speaks in a code. You wouldn't need the Enigma machine to decipher it, however, and rate watchers can translate what he is saying in a heartbeat. "We will continue to monitor very closely all developments with respect to upside risks to price stability," he said on Thursday. "Monitor very closely" means there will be a further rate rise of a quarter of a per cent this year, and it is likely to be in the last three months of the year.
But that will be the end of it, won't it?Well, that would be nice but it seems unlikely. Unless some unforeseen economic calamity strikes the euro zone – and what could possibly go wrong in the euro zone? – there will be at least two further rate hikes next year.
What about people on standard variable-rate mortgages. They are not affected by this week's moves are they?Yes, yes they are. Most Irish banks have increased their variable rates by anywhere between 0.5 per cent and 1.5 per cent over the past six months as they try to repair their fractured loan books. They have not been able to target tracker holders or those on fixed rates so the variable rate holders have been getting it in the neck. There is no chance the banks will hold back on passing on the rate hikes to variable-rate holders now.
Is anyone to be spared the pain?People who fixed their mortgages a year ago are starting to look a little smug right now. As are those people who are renting. While mortgage rates are going up, rents are stagnating.
Okay, so, what's the bottom line?The average person with a €300,000 tracker mortgage will have to pay about €200 a month more in mortgage repayments by the end of next year than they did at the beginning of this year. And in case you can't do the maths, that's €2,400 a year or the price of a family holiday or 34 fairly expensive nights out.
