The European Central Bank’s third interest rate hike of the year, will help cool house prices and may bring prices down, according to Tánaiste Leo Varadkar.
The 75 basis points rate increase will hit around 400,000 tracker mortgage holders from next month, while variable rate customers also face higher repayments at some stage.
"Obviously, it’s not going to be welcome for people borrowing and mortgage holders," the Fine Gael leader commented.
"I’m one of those people who gets that letter in the post a few days after the ECB makes a decision, telling me the mortgage has gone up, and we absolutely understand that this isn’t good news for people who have mortgages.
"But it will have other effects. For pensioners it will mean a better return on their savings, and also probably help to contain house prices and maybe even bring them down a bit for people who are buying for the first time."
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The ECB base rate increase to 2,0% will not be the last, with another hike expected in December, as ECB president Christine Lagarde aims to reduce inflation. Average eurozone inflation is 10%, five times the target. The latest rate for Ireland was 8.7% in September, down from 9.1% a month earlier but still at a near 40-year high.
Following the ECB rise, Bank of Ireland confirmed its tracker mortgage rates will increase by 0.75 percentage points from November 16.
During Leaders’ Questions in the Dáil yesterday, Sinn Féin finance spokesman Pearse Doherty said the interest rate increase will provide a "bonanza" for Irish banks.
He said: "Those variable rates are at the mercy of these banks, and the decisions they make in the coming weeks and months could increase the mortgage repayments on households by thousands of euro. Banks need to do the right thing. They need to not pass on these rate hikes and need to make that clear to their customers."
In response, Mr Varadkar stated: "I agree that banks shouldn’t be using rising interest rates as an opportunity to make excessive profits. I absolutely agree with you on that. But they do need to take other factors into play as well."
The euro dropped and European government bond yields slid after the announcement, which was in line with market expectations. Ms Lagarde yesterday noted that while the Ukraine war and other uncertainties meant the euro-area economy faced a number of risks to the downside, inflation risks were skewed upwards.
"The growth of wages may be picking up," she said, stressing that the central bank is monitoring expectations about long-term inflation. The ECB offered no hints for now about plans to start winding down its bond holdings.
