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LAST UPDATE | 21 Jul 2022
TRACKER MORTGAGE RATES for Irish banking customers are set to rise following the European Central Bank’s (ECB) decision to raise it’s interest rate by 0.5%, the first hike in over a decade.
In the face of soaring inflation, the central bank’s policymakers are committed to raising interest rates by at least a quarter point from their current historic lows.
The ECB is facing pressure to tackle rising inflation but the interest rate increase is also likely to lead to increased repayments for those with variable or tracker mortgages.
So far, Bank of Ireland and Permanent TSB have announced an increase to tracker mortgage interest rates, but neither bank has sought to increase variable mortgage rates.
For Bank of Ireland customers, these increases will take place on 10 August, with the bank set to write to all tracker mortgage customers to confirm the changed rates.
The bank says that no other services are being impacted by the ECB’s change.
Permanent TSB also confirmed that the interest rate changes will not impact on personal fixed or variable rate mortgage customers.
“We are pleased to provide reassurance to our personal fixed and variable rate mortgage customers that we have no plans to pass on today’s ECB rate increase,” said Permanent TSB CEO Eamonn Crowley.
“We will keep our position under review in light of any further market changes.”
Martina Hennessy, Managing Director of digital mortgage platform doddl.ie said that the ECB hiked interest rates higher than what was originally expected.
“This increase of 0.5 per cent is not good news for tracker mortgage holders who will have one month before seeing an increase of €23 per month for every €100,000 owed over a 25 year term.
“For a mortgage of €250,000 – which is the average mortgage in Ireland – that’s an extra €696 a year.
Consumer prices
Consumer prices rose at an 8.6% annual pace in June, a record for the eurozone and well above the ECB’s two-percent target.
The broken supply chains and the rising cost of energy following Russia’s invasion of Ukraine that have driven the price surge are also weighing on economic activity in Europe.
The continent’s dependence on Russian energy imports has eurozone members bracing for a difficult winter and planning to ration supplies if Moscow halts gas deliveries.
The European Commission on Wednesday put forward a plan to cut gas use by 15% to mitigate the worst potential impacts on the economy.
But with inflation showing no signs of slowing, the ECB lagging behind its peers in Britain and the United States, and the euro looking weak against the dollar, the pressure is on the ECB to think about bigger hikes.
Central banks would normally hesitate before raising rates with the economy in such a delicate position “but inflationary pressures have increased to a point where the ECB has to act whatever it breaks”, said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management.
Finding a way to balance growth and inflation risks looked like “an impossible equation to solve” for the ECB, he said.
The central bank’s deposit rate has been negative for the past eight years, with the key rate currently at minus 0.5%.
The punitive interest rate, which effectively charges banks to park their money with the ECB overnight, was designed to encourage more lending, more economic activity and higher inflation rates.
ECB President Christine Lagarde has said the aim is to lift interest rates out of negative territory by the end of September as part of a “gradual but sustained” series of hikes.
Mortgages
The increase in the ECB’s base interest rate will likely have a knock-on effect for some mortgage holders online broker Joey Sheahan of MyMortgages.ie saying that eyes will now be on the lenders to see how they react to the ECB’s announcement.
“Today’s announcement will hit the pockets of the approximately 300,000 Irish mortgage holders on tracker rates and probably the about 200,000 on variable rates,” he said.
Meanwhile, the US Federal Reserve and the Bank of England have already raced ahead of the ECB, beginning their hiking cycles sooner and cranking rates up more aggressively.
It would be difficult to explain why the ECB would “spend the summer with negative interest rates while inflation in the eurozone is climbing further”, said Franck Dixmier, head of fixed income at Allianz Global Investors.
The last time the ECB raised rates in 2011, the emergence of a European debt crisis quickly forced the central bank to reverse course.
The ECB president that finally quelled the tensions on the bond market was Mario Draghi, who tendered his resignation as prime minister of Italy this morning over his country’s struggling economy.
The ECB’s announcement in early June that it would finally raise interest rates led borrowing costs for more highly indebted eurozone members like Italy to rise faster than others.
Limiting the divergence between the 19 different members is “critical” to make sure monetary policy moves were felt evenly across the eurozone, ECB vice-president Luis de Guindos said in early July.
To this end, the ECB has said it will “flexibly” reinvest maturing bonds from its portfolio to hoover up debt from more at-risk countries and ease the pressure.
The bank has also set about designing a new crisis tool to preserve the “transmission” of its monetary policy moves with targeted bond buys.
ECB policymakers could unveil more details about the “anti-fragmentation” tool today but the idea has been met with scepticism by some governing council members, who would see it used only under strict conditions.
At the same time, a political crisis in Italy is a “textbook case of a situation where the ECB should not intervene”, said Ducrozet from Pictet.
© AFP 2022 with reporting by Rónán Duffy and Tadgh McNally
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Convenient they can blame the EU now
@Pj Browne: god forbid we follow laws and agreements.
I wouldn’t mind but it’s literally the government’s job to know how to pass laws and give enough notice to those affected. They’re getting away with doing it to renters, but it sounds like the people who have managed to afford a spare room are able to stand up for their agreed legal right to fair notice.
@Fiona Fitzgerald: sorry what do you mean they are getting away with it on renters ? If you mean not extending the temporary winter eviction ban I think you have that all messed up
Slightly confused about this article? What exactly is the delay? There has to be a reason for this but the article implies that it’s the EU who is for some unknown reason delaying the process. Clearer journalism would help
@Dave Phelan: It says they want to “engage with stakeholders”, which to me means they want to present the data from their analysis and need those at the top to prioritise it over other issues based on that data. The real question to me is why wasn’t this analysis done in the beginning when it was first proposed?
If you have bought a house, paid vat, paye, stamp duty etc, then the government should not be able to prevent you doing something lawful with it. Deflecting blame from their own failures
@Dave Harris: in fairness nobody is allowed do what they like once they buy something. It does seem unfair that somebody could suddenly find themselves living next door to an ever rotate number of strangers on holidays who often don’t respect locals. Think there is a place for short lets but it can’t go on as is.
@Dave Harris: lol lawful? The state decides what’s lawful. In this case lawful is changing it so that you have to have planning permission before turning your property in a domestic structure into a business. All the other people in the area/building bought based on it being a residence not being a hotel. And every other lawful accommodation business needs to register with bord fáilte and have the required standards and checks in place so why should these get away with it?
@Dave Harris: Laws change and rightly so as society evolves. Airbnb has had a huge impact on housing crises across Ireland and internationally. The government has failed on a number of fronts in relation to housing and regulating short-term rents is one thing they need to act on. We have tourists in home while homeless and refugees are in hotels.
@Emma Meehan: never sure on this “huge” impact in Ireland. Never saw any figures.
12,000 rental units – what a load of cobblers. As a former Airbnb host, I know that most rural hosts have a couple of rooms in their own house or a granny flat and they are definitely not viable accommodation long term. It’s probably different in the cities. But now the rules mean getting planning permission, registration fees, etc. So it’s an end to the farming community or elderly people getting the chance of a few quid in summer time and bringing much needed tourism to the regions. When something is not broken, why try to fix it? As the hosts I’ve been listening to are just getting out. Same as with small landlords, there’s too much hassle, beaurocracy and expense.
@Shelley Keary: As someone who uses Airbnb regularly for accommodation in rural parts of Ireland, I’d definitely agree that most places even those at the higher end in terms of standards are definitely not suitable for long-term renters. They are often in beautiful parts of the country and ideal for some quiet time away but located in very isolated areas, with limited access to services such as schools, medical centres etc, and only having a one shop village nearby that requires driving to. Flaky internet so not suitable for remote work etc, prone to dampness in winter, no childcare available & absolutely no transport options. A blanket approach to classifying all Airbnbs in the same way is ludicrous. The reality of available, suitable, properties is much less then the projections given.
@Shelley Keary: and taxes
Ireland, behind the curve as usual. https://www.nyc.gov/assets/buildings/pdf/MultipleDwellingLaw.pdf
@zephyrum: what has US laws got to do with Irish and EU laws?
The change of use planning rules which have not been announced for Short Term Rentals by the Housing Minister but form part of the proposed Tourism Register is the reason thousands of self catering tourist accommodation providers voiced their concerns to the EU via the TRIS submission process. Rural and coastal tourist accommodation is being put in the same boiling pot as urban short term let’s who are capitalising on higher rental rates and should be the target of the government but all offering these services will be put into the same net. This will have a significant impact on rural businesses that provide benefit to all local businesses whether food and bev, tourist attractions, etc. These rural businesses are already reeling from reduced numbers if accommodation in Summer 2022 due to 35 percent of accommodation contracted to the government for refugees.
Not sure why a Tourism Register is being linked to housing policy that hasn’t been announced? TRIS requires that such policies should be transparent. There was no indication either on what the registration annual cost would be, so I’m wondering why the Govt is surprised that this proposed legislation is at a standstill till Dec 23. Maybe Housing Dept should be looking at their shortcomings rather than trying to pin the homelessness problem on anyone and everyone but themselves.
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