More mortgage woe... ECB announces third interest hike this year

The European Central Bank has raised interest rates for the third meeting in a row today.

The ECB has raised its 0.75 per cent deposit rate by 75 basis points – completing an overall 2 per cent increase in three meetings this year. Worryingly, the ECB has indicated it's not yet done, as it tries to reign in inflation.

Euro zone inflation is now running at 10 per cent, ahead of the ECB target rate of 2 per cent. Inflation in Ireland in September was 8.6 per cent.

There are approximately 400,000 households in Ireland with tracker and variable rate mortgages who will be most exposed to any rate rise.

For mortgage holders on a tracker mortgage, their monthly repayments on a E200,000 mortgage will instantly increase by approximately E75-E80 per month. It's unclear if banks will pass on the full impact of the increase to variable-rate mortgage holders.

Speaking today Tanaiste Leo Varadkar acknowledged the ECB decision would not be welcome news for thousands of homeowners.

“The decisions they (ECB) make is obviously not going to be welcoming for people who are mortgage holders,” said Mr Varadkar, adding that he was “one of those people who gets a letter in the post a few days after the ECB makes a decision, telling me that the mortgage has gone up.”

He added: “We absolutely understand that this isn't good news for people who have mortgages, but it will have other effects.

“It will help to bring down inflation for example.

"For pensioners, it will mean have a better return on their savings.

"And bear in mind, (the hike) will help to constrain house prices and maybe even bring them down a bit for people who are buying for the first time.”

Mr Varadkar added: “We have had a very prolonged period of very low interest rates.

"That wasn't normal. That has now come to an end. But obviously nobody wants to see interest rates going too high at the same time.”

Sinn Féin's finance spokesperson has called on the Government to introduce mortgage interest relief for homeowners on tracker mortgages, saying it was unfair that Irish banks made a "bonanza" from interest rate hikes.

Deputy Pearse Doherty said that Irish banks "should be able to absorb" these hikes, given the Central Bank had concluded that the profitability of banks had recovered and was set to be "bolstered" by rising interest rates.

The TD for Donegal appealed to the Government to call on Irish banks not to pass on the interest rate hikes, adding "no household" can budget for interest rates of this order.

More to follow...