CONSUMERS CAN expect to pay an extra €39 a month on average to service their mortgage following the European Central Bank’s (ECB) decision to increase interest rates in the euro zone by 25 basis points.
Customers on tracker mortgages will feel the pain of the rate change as soon as their next mortgage payment as the ECB’s new 4.25 per cent rate comes in from July 9th, pushing most tracker rates up to almost 6.0 per cent.
For those on other rates, most of the main banks have yet to make a decision on whether to pass on the rate rise to their customers – Permanent TSB is set to increase its rates from mid-July. However, the likelihood is that many will do this as the cost of raising funds on the wholesale market continues to rise.
Previously, a mortgage of €100,000 over 20 years at an average tracker rate of 5.5 per cent would have cost €687.89 a month to service, or €567.79 over 30 years. Now, however, consumers can expect to pay €702.08 over 20 years, or €583.57 over 30 years, indicating a monthly increase of €14.19 or €15.78 respectively.
This means that servicing a 20-year mortgage on the average home in Ireland – valued at €275,176 in May by the permanent TSB/ESRI house index – has gone up by €39.07 a month.
The ECB’s decision comes on the back of a number of rate rises made in recent weeks by Ireland’s mortgage lenders as they looked to pass on the significantly increased cost of funds to their customers.
In June, AIB announced a number of rate increases, including pushing its standard tracker rates up by 0.4 of a percentage point for new customers and its fixed rates up by as much as 0.6 of a point.
More recently, Ulster Bank increased its standard variable rate by 0.31 of a percentage point, from 5.70 per cent to 6.1 per cent, and the bank also increased its home loan and investment tracker rates.
Halifax also increased its rates and its one-year fixed rate rose from 4.75 per cent 5.58 per cent.
However, the ECB’s announcement is not all doom and gloom as consumers may benefit from increases in deposit rates. Permanent TSB is expected to increase its deposit rates in line with the ECB’s rate change from mid-July. The other main banks say they have yet to make a decision.
