Mortgage-holders face their sixth increase in interest rates in a year following yesterday's decision by the European Central Bank (ECB) to raise its key interest rate by one quarter of a percentage point, writes Marc Coleman, Economics Editor
The increase, the sixth since December last year, brings the ECB's main refinancing rate to 3.5 per cent, its highest level in five years.
The move came a day after the Budget doubled mortgage interest relief for first-time buyers. Opposition leaders predicted yesterday that the rate increase would wipe out the benefit from the increased mortgage relief.
ECB president Jean-Claude Trichet signalled that at least one further interest rate rise was in prospect for next year. Mr Trichet said that interest rates remained low even in the wake of the latest increase and he strongly hinted at future tightening. "Looking ahead, acting in a firm and timely manner to ensure price stability in the medium term is warranted."
His remarks were interpreted as signalling at least one more rate increase in the first half of next year, although analysts said the tone of his remarks made any further increases less likely.
NCB stockbrokers economist Eunan King said Mr Trichet's comments were a signal that another quarter-point rate increase was likely in the spring. But Mr King added that they also reduced the likelihood of significant further increases.
"His remarks replace a previous reference to 'withdrawal of monetary accommodation' and this suggests some softening in tone."
Irish Intercontinental Bank economist Austin Hughes said that yesterday's rate rise would increase the cost of servicing a €250,000 20-year mortgage by €35 per month.
But Fine Gael finance spokesman Richard Bruton said that for average mortgage-holders, yesterday's rate increase represented a €750 increase on annual interest payments, almost fully offsetting the impact of increased mortgage interest relief.
Joan Burton, Labour spokeswoman on finance, said the ECB's announcement "represents a further tightening of the screw for many hardworking families." She added: "This is the sixth hike since December 2005 and it means that monthly repayments on a typical mortgage of around €300,000 will have increased by close to €300 in the same period".
Green Party finance spokesman Dan Boyle accused the Government of being all too cynically aware of the latest rise in interest rates when it proposed a Budget measure that would immediately lose impact.