Fixed rate mortgage households face €3,540 hike in annual repayments
Pain To Changes Changes Tracker Rates Mortgages To Are People Because Immediate Ecb Directly Rates Their 171,000 On In Official July More Linked The In The Face
European Central Bank (ECB) head Christine Lagarde has set the scene for a further rate hike that will mean Irish households refinancing their fixed rate mortgages will face an annual increase of €3,540 in their mortgage payments.
Speaking at the annual ECB gathering in Sintra in Portugal, Ms Lagrade all but pledged the ECB will raise rates in July — 12 months after it set out on its campaign to fight soaring prices across the eurozone — and suggested that more rate increases were to come.
“It is unlikely that in the near future the central bank will be able to state with full confidence that the peak rates have been reached,” she told the gathering.
Financial markets are betting the ECB will hike official rates by a quarter point next month and follow through with a further quarter-point increase by the end of this year, and will only start to cut rates in 2024 and through 2025, said Davy chief economist Conall Mac Coille.
The latest eurozone inflation figures due to be published later this week will likely do little to bolster the case for the ECB to halt increasing official rates any time soon, as the core inflation rates which are scrutinised by the central bank will likely show little change, Mr Mac Coille said.
Leading mortgage broker Michael Dowling said the comments by Ms Lagarde point to significant pain for the 71,600 households whose fixed rate mortgages come up for refinancing this year. They face paying €3,540 more for their home loans over a full year, he said.
"71,600 customers are coming off their fixed rates by year end, and represent 10% of all residential mortgage customers," Mr Dowling said.
"Their existing typical fixed rate will be 2.75% and these customers will be faced with alternative fixed rates of 4.5%, which means based on a mortgage of € 300,000, these customers will face a monthly increase of €295, or an increase of €3,540 per year, based on an ECB quarter-point rate rise in July and a likely further quarter-point rise in September," he said.
The 171,000 people on tracker mortgages face more immediate pain in July because their rates are directly linked to changes in the changes to ECB official rates.
"The average tracker mortgage balance is € 133,000 and therefore, the average tracker customer will have a rate of 5.65% by the end of September.
"Taking a €133,000 balance, the monthly tracker repayments will have increased by €280 per month, or by €3,360 per year," Mr Dowling said, following two further rate rises.
The final stages of the ECB’s rate push are the focus as headline inflation fades but underlying price pressures prove stubborn.
A majority of economists sees officials pausing after next month with a deposit rate of 3.75%, though money markets are pricing a peak of about 4% later this year.
“Right now policymakers just have to err on the side of saying ‘we have lots of options, options are on the table and we will keep hiking if needed,’” Morgan Stanley chief global economist Seth Carpenter told Bloomberg TV.
“I don’t think they have a chance anytime soon to declare victory.”