The European Central Bank (ECB) is anticipated to raise interest rates by 0.25 percentage points tomorrow. Should banks fully implement this increase, it will result in higher repayments for first-time homebuyers with a typical mortgage of €300,000. These borrowers can expect their monthly payments to rise by €45, totaling an extra €540 per year.
This upcoming rate hike will mark the ninth increase within the eurozone. However, there is optimism that it might be the last. Initially, the market had projected another rate hike in September, but doubts have now emerged regarding the likelihood of this increase.
Economist Conall Mac Coille from Davy revealed that the 0.25 percentage point rise this week had been fully factored in by the markets, but the chances of a September hike now seem less certain. The ECB’s Governing Council has been influenced by the sharpest decline in bank lending within the eurozone since the global financial crisis, as well as evidence of an overall economic slowdown based on a survey of purchasing managers.
Mac Coille also highlighted that the typically hawkish Dutch Central Bank governor, Klaas Knot, expressed skepticism toward an automatic rate hike in September. Furthermore, financial experts suggest that it may not be until next year or even 2025 when rates start to decline.
Mortgage broker Michael Dowling commented on the mixed signals being sent by the ECB regarding a potential rate increase in September. Approximately 400,000 mortgage borrowers, including those with tracker rates, variable rates, and those reaching the end of fixed rates, are exposed to higher rates over the next two years.
In fact, this year alone, over 60,000 homeowners are due to come off fixed rates, placing a significant strain on their finances. An additional 120,000 borrowers on tracker rates will automatically experience an increase in their interest rate and repayments.
Around 164,000 individuals with variable rates are also likely to be affected by the ECB’s rate rises. Many of these borrowers are trapped with vulture funds and are unable to switch or secure a fixed rate.
Mark Coan, a financial advisor from moneysherpa.ie, cautioned that even if eurozone interest rates stabilize, borrowers could still face escalating variable rates imposed by banks, non-banks, and vulture funds.
Dowling estimated that around 60,000 mortgage holders will be reaching the end of their fixed rates this year. Since these borrowers last fixed, rates have risen by approximately two to 2.5 percentage points. Consequently, a family with a €300,000 mortgage previously fixed at 2.75% will now be facing fixed rates of 4.5%.
This means that these consumers will be burdened with an additional €300 in monthly repayments, surpassing €3,500 per year.
It is anticipated that fixed rates will potentially reach 5% before the year’s end.
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