Mortgages in the firing line as ECB increases interest rates by 0.25 percentage points

The European Central Bank (ECB) raised interest rates by a further quarter point (0.25 per cent) on Thursday as conflict in the Middle East stoked a fresh surge in energy prices.Policymakers also signalled they were ready to lift borrowing costs again if the inflation outlook does not improve.“The outlook remains highly uncertain, with risks to the upside for inflation and to the downside for economic growth,” they said, while increasing their inflation forecasts for 2027 and 2028.The widely anticipated move, which lifted the ECB’s main deposit rate to 2.5 per cent, will put further pressure on borrowers here.It also comes as separate figures from the Central Statistics Office indicate that mortgage interest repayments in Ireland have risen by 10 per cent in the last 12 months. A homeowner with a tracker rate on a €150,000 loan with more than 10 years left faces an annual increase of roughly €200 in their repayments as a result of Thursday’s decisionThe latest hike will potentially impact variable rates offered by Irish banks in the months ahead and people coming off fixed rates are also likely to have to pay more.[ Irish mortgage holders warned to brace for ‘tough winter’ with two rate hikes expectedOpens in new window ]While ECB president Christine Lagarde has repeatedly insisted the bank is not on a predetermined rate path, financial markets are pricing in one more rate hike this year, ?followed by one or two moves next year.Policymakers are battling an increase in consumer-price inflation which rose above 3 per cent last month, an increased that is unlikely to recede in the months ahead. Lagarde said the latest hike was “a no brainer” that was decided unanimously.Repeatedly asked about market bets on future rate increases, she said “markets do what they have to do, and we do what we have to do, which is to provide price stability.”Lagarde repeated the bank’s statement about the US’s seemingly open-ended conflict in the Middle East continuing to generate inflationary pressures.“This is likely to keep headline inflation well above target into the first half of 2027,” she said. Her tone was perceived by commentators as hawkish, signifying the ECB believes the inflation push is likely to persist.The central bank sees headline inflation averaging 3 per cent this year, 2.5 per cent in 2027 and 2.1 per cent in 2028.The projection for economic growth across the bloc was 0.9 per cent for 2026, 1.4 per cent for 2027 and 1.5 per cent for 2028 which the bank noted was an upward revision for both 2026 and 2027, “reflecting the greater than expected resilience of the euro area economy”.From kitchen counter to supermarket shelves, the rise of Ballymaloe Foods Listen | 38:36Trevor Grant, chairperson of Irish Mortgage Advisors, said State’s 130,000 tracker mortgage holders would be first to feel the squeeze.“If you combine today’s increase with the June rate hike, monthly repayments for a tracker mortgage customer are now between €24 and €28 a month higher for every €100,000 borrowed than they were prior to June 2026,” he said.“While many borrowers will understandably be worried about today’s announcement, it’s important that they are not unduly alarmed. Competition and not the ECB is the main influence on home loan rates in Ireland,” Grant said.Rachel McGovern of Brokers Ireland said the latest rate increase will also affect people coming off fixed rates.“Many coming off rates now would have been on rates under 3 per cent and are coming out into a much higher interest rate environment,” she said.Oil prices eased on Thursday but Brent ?crude remained above $100 (€86) ?a barrel as traders braced for deeper supply disruptions after Iran and the US launched their largest wave of attacks on shipping since their six-month-old conflict began..