Meeting in Athens today, the ECB warned that inflation is still not at target levels and hinted that it may increase interest rates again.
Despite warnings of further rate hikes, many commentators said the ECB was unlikely to raise rates again because of the great risk of dragging the European economy into recession.
There was a warning that banks and non-bank lenders here could still raise mortgage rates even after the ECB left the main refinancing rate at 4.5 percent.
Daragh Cassidy, of mortgage broker and comparison website Bonkers.ie, warned that new fixed mortgage rates and variable rates could rise by up to 1 per cent in the coming months.
He said: “Even if the ECB does not raise interest rates further, there is a good chance that major Irish lenders will increase mortgage rates in the coming months.”
Mr Cassidy said this meant potential first-time buyers, those on variable interest rates and those on fixed rates that were due to expire soon needed to prepare for this.
He said mortgage interest rates could rise because Irish banks still had to respond to many of the previously announced rate rises.
“Since last July mortgage rates in Ireland have increased by just 1.5 to 2 percentage points.
“And some lenders’ variable interest rates have increased even less (except for trackers, of course). “This was despite the ECB’s 4.5 percent interest rate increase,” he said.
Banks here still have to pass on most of the previous ECB rate hikes.
Mr Cassidy said this was why Ireland’s mortgage rates went from the highest in the Eurozone last year to among the cheapest this year.
“New fixed mortgage rates and variable rates could increase by up to 1 percent in the coming months,” he added.
Inflation in the Eurozone is twice the ECB’s 2 percent target.
It has raised interest rates to record levels 10 times since the summer of last year in the hope that higher borrowing costs will dampen demand and ease some of the price increase pressure in the currency zone.
Mortgage broker Michael Dowling of Dowling Financial said he doesn’t think banks will raise mortgage rates in the short term.
“I don’t feel any incentive to raise interest rates further in the short term,” he said.
Each 0.25 percentage point increase in mortgage interest rates adds approximately 156 euros to the annual repayment of every 100,000 euros of loan taken out over 25 years.
High interest rates have also limited the amount house hunters can borrow.
This is because the amount of proven repayment capacity that banks want to see increases by up to €600 per month for a €300,000 mortgage.
Economists have warned that high inflation across the eurozone means the ECB’s interest rate cut could come as early as the end of next year.
This will be a blow to borrowers who expected interest rates to fall sooner.
Independent economist Austin Hughes said lowering interest rates could take until next year.
“The consensus view is that it will be towards the end of 2024 before the ECB will consider reversing course, but I think the signs of serious problems in the eurozone will grow a little faster,” Mr Hughes said.
