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Monday, May 20, 2024

Homeowners should brace for financial strain as the European Central Bank raises interest rates by 0.25%


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Borrowers have been dealt yet another blow as the European Central Bank (ECB) has raised its main lending rate by 0.25 percentage points, taking the key refinancing rate to 3.75pc. This is the seventh rate rise since last summer, and it is sure to put pressure on those looking to buy a home, coming off fixed rates, or on a tracker or variable.

Every 0.25 percentage point increase adds about €13 to the monthly repayments on each €100,000 borrowed over 25 years, resulting in about €150 extra per year for each €100,000 borrowed if the full rise is passed on. The ECB could announce up to two more rate hikes before the summer is over, meaning nine rate rises in total. This is an attempt to combat the increasing inflation in the eurozone, which rose from 6.9pc in March to 7pc last month.

Around 171,000 tracker mortgage holders in Ireland are directly affected by each ECB rate rise. These rates have risen from 1.15pc to 4.65pc on average since last June. As a result, the average tracker with 11 years of repayments left will now have an extra €200 in annual cost of repayments. There are approximately 210,000 accounts on variable rates, and with each ECB rate rise, they are passed on to them as well. Meanwhile, 50,000 homeowners are set to come out of fixed rates in the next three years and financial advisers are urging them to break out of these arrangements and re-fix before rates go even higher. Finally, around 60,000 mortgage holders are stuck with vulture funds, where variable rates as high as 8pc and 9pc are being charged.

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Owen is an excited writer with over 10 years of experience in the newspaper industry. Born and raised in Ireland, Owen developed a passion for writing and journalism at a young age. He pursued this passion by studying journalism in college and quickly landed a job as a reporter at a local newspaper. Over the years, Owen worked his way up the ranks in the newspaper industry, eventually becoming one of the top editors in the company.

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