Hopes that the European Central Bank may delay increasing interest rates as soon as April were dashed as officials indicated the economic uncertainty caused by Japan’s earthquake may not deter them from raising interest rates next month.
ECB Executive Board member Gertrude Tumpel-Gugerell and Governing Council member Yves Mersch both said yesterday that “strong vigilance” is necessary to keep a lid on inflation, a phrase the central bank uses to signal a rate increase is imminent. ECB President Jean-Claude Trichet also told the European Parliament he has “nothing to add” to his March 3 remarks, when he said policy makers may raise the benchmark rate from a record low of 1 percent at their next meeting in April.
Any rate increase announced by the ECB in April is expected to be modest, at about a quarter percent. However, once the ECB begins increasing rates, it tends to be part of a cycle. “The ECB does not do one-off rate increases. They tend to work in cycles and mortgage holders here should prepare their personal finances for anything up to a three-quarter percent to a 1 percent rise over a 12-month period” said Mr. Conway, Director with MoneyCoach.ie
Since its foundation, the ECB has managed two distinctive periods of rate increases, these include: Nov 1999 – Oct 2000 cumulative increase was 2.25%
Dec 2005 – Jul 2008 cumulative increase was 2.25%
A quarter percent increase (25 basis points) to the base rate of interest will see mortgage repayment
in Ireland increase by about €45 per month on a €300,000 mortgage. A full one percent increase (over a 12-month period) would result in mortgage repayment increasing by €180 per month per €300,000 or over €2,160 per year.
“One piece of good news for some mortgage holders is under the Programme for Government, mortgage interest relief may be increased from June for some first time buyers
. However, mortgage interest relief may also be abolished for non-first time buyers as well as first time buyers
who purchase after June 2011” said Mr. Conway.