ECB Raises Interest Rates

Hits Irish Homeowners In Their Pocketbooks

An interest rate hike imposed by the European Central Bank last week will cost the average home owner an extra 1,500 Euro a year and may also slow down house prices.

On Thursday the ECB pushed interest rates up by a quarter percent, raising the total to 3%.

The rise comes after three earlier interest rate rises had already added on an extra 1,500 a year to the average mortgage repayments.

That figure is based on a 300,000 Euro mortgage repaid over 30 years, one of the most popular choices with homebuyers.

Financial experts are now predicting another two interest rate rises by the end of the year, with the next one due in early October.

That will push the average mortgage interest rate to around 4.6%.

Although the rise will affect family incomes, leaving less to spend on other goods, the hardest hit sector will be the first time buyer.

Many first time buyers are already stretching themselves to the limit as the cost of houses in Ireland spirals ever higher.

The average cost of a home in Ireland currently stands at 400,000 Euro, and that figure doesn't account for the huge regional disparities in areas such as Dublin and the commuter counties surrounding it.

Last week's increase was the fourth hike since December, the level of interest rates has increased by half since then.

ECB president Jean-Claude Trichet said the rises were necessary to keep inflation in check, but were still low enough to stimulate the economy.

Many expect that if the Eurozone continues to perform strongly interest rate rises will reach their 'natural level' of 4% by the end of 2007.

However Irish politicians said the increase in interest rates, combined with already high housing prices have 'pushed the dream of owning a house beyond most people'.

"The rise in mortgage costs is much more than the increase many workers would receive under the recently concluded government partnership agreement," Labour party deputy leader Liz McManus.

However economists expect the rising costs of houses to slow down in the coming months.

Irish house price rises have surged far ahead of most of Europe, despite the rise in interest rates since last December.

Already estate agents have reported that in some areas house price rises have dramatically slowed down, and in some cases have even decreased slightly.

The interest rate rises will also affects thousands of Irish people who have taken out personal loans on top of mortgages.

Personal debt in Ireland is one of the highest in the world.