ECB Raises Interest Rates to a Record Level of 4.5%

The European Central Bank (ECB) has increased interest rates by 0.25% to a record level of 4.5%, marking the tenth consecutive hike.

This was reported by The Journal.

For most individuals with tracker mortgage loans, this increase will raise their monthly mortgage payments by 25 euros or more.

The central bank of the 20 countries that use the euro has already raised rates by 4.25 percentage points since July of last year to combat rapid consumer price increases.

Ronan Brennan, Head of Retail Banking Services at Delta Capita, stated that those with tracker mortgage loans will "feel the immediate impact," but those with variable-rate mortgage loans will also experience the consequences.

"Borrowers switching from fixed-rate mortgages to variable-rate mortgages as their fixed-rate mortgage contracts expire will also face higher interest rates, leading to higher monthly mortgage bills, and for some, a greater risk of mortgage arrears," he explained.

Further rate hikes this year are "unlikely," according to Joey Sheahan, Head of Credit at online broker MyMortgages.ie, who said that continuous hikes over the past 14 months have caused "chaos" for mortgage holders.

"Higher interest rates have constrained the number of loans home buyers can borrow, as the amount of demonstrated affordability that banks want to see has increased by a whopping 600 euros per month for a 300,000 euro mortgage, meaning banks want every mortgage applicant to save significantly more each month."

Analysts are divided on whether the ECB will make another 25-basis-point hike or take a pause.

Recent data showed that eurozone growth in the second quarter reached only 0.1%, lower than previous estimates, and the EU lowered its GDP forecasts for 2023 and 2024 for the eurozone, citing, among other factors, Germany's weakness.

Europe's largest economy is trying to recover after falling into a recession earlier in the year, which was hit by an industrial slump, high energy costs, and a slowdown in exports to key partners such as China.

As reported by The Gaze, the ECB forecasts that inflation will reach 5.6% in 2023, 3.2% in 2024, and then decrease to 2.1% in 2025.