Mortgage holders could be hit with a bumper rate rise – the seventh increase since last summer

The European Central Bank (ECB) is expected to push up its lending rates by at least 0.25 percentage points tomorrow, with some economists now warning of a 0.5 percentage point rate hike.

Such a move would cost those on trackers and variable rates thousands of extra euro in repayments, and push up the cost of new fixed rates for new home buyers.

A 0.5 percentage point rise would mean an extra €390 a year for a typical tracker customer with 11 years of repayments left.

Economist with Davy Stockbrokers Conall MacCoille said an ECB rate hike of 0.5 ­percentage points was “certainly possible” as the fall in the core inflation was marginal.

On the other hand, a European bank lending survey pointed out that a tightening in lending, combined with the uncertainty over US banks, may point to a smaller rate rise this week, he said.

“Either way, it is not good news for mortgage holders.” Mr MacCoille said

This week’s rate rise will be the seventh since last summer.

Inflation in the eurozone picked up last month, leaving the European Central Bank (ECB) with a tough decision to make tomorrow.

And with eurozone inflation going from 6.9pc in March to 7pc last month, some economists are now warning to expect a 0.5 percentage point rate hike.

Market observers expect another two rate rises before July.

Latest calculations show there are around 171,000 Irish tracker mortgage customers, who are directly affected every time there is an ECB rates rise.

Around 50,000 homeowners are set to come out of fixed rates in the next three years, with financial advisers telling them to break out of these arrangements early and re-fix before rates go even higher.

Meanwhile, around 60,000 households with mortgages are trapped with vulture funds. They are not offered fixed rates, and are being charged variable rates as high as 8pc and 9pc, with each ECB rate rise being passed on to them.

Typical tracker interest rates have spiralled from just 1.15pc in June 2022 to 4.65pc on average at present.

There is around €133,000 still to pay on a typical tracker loan, as many were taken out years ago.

A 0.25 percentage point rise would mean an extra €200 a year for a tracker customer with 11 years of repayments left.

A 0.5 percentage point rise would mean paying an extra €390 a year, according to calculations by Mark Coan of money guide Moneysherpa.ie.

He said a 0.5 percentage point rise will take the average tracker mortgage rate to 5.15pc from a rate of just 1.15pc in June last year.

“On these rates, the cost of an average tracker will have increased by over €30,000, or €2,553 per year, since last June,” Mr Coan said.

“That’s a staggering 20pc-plus increase in the cost of tracker mortgages.”

He said the average tracker outstanding is €133,000, with around 11 years left to pay.

Mr Coan based his calculations on Central Bank figures.

Head of European investment strategy at State Street advisers Altaf Kassam said the organisation’s “baseline expectation” for the outcome of the ECB’s May 4 meeting was for a rate increase of 50 basis points, or 0.5 percentage points. That forecast was not “locked in”, he said, but “the most likely outcome”.