MORTGAGE HOLDERS face an increase in their monthly payments after the European Central Bank (ECB) raised lending rates yesterday by one quarter of a point to 4.25 per cent. The rise, the first since June 2007, brought rates to their highest level in seven years.
The rise is likely to be passed on to mortgage holders over the next month. The increase would add around €40 to a typical €250,000 mortgage being repaid over a term of 30 years.
Customers on tracker mortgages will feel the pain of the rate change as soon as their next mortgage payment as the ECB's new rate comes in from July 9th, pushing most tracker rates up to almost 6 per cent.
The effect on mortgages will add 0.6 percentage points to the annual rate of inflation, the Central Statistics Office estimated yesterday. Consumer prices rose by 4.7 per cent in the year to May 2008.
Reacting to the continuing concerns about the economy, Taoiseach Brian Cowen said yesterday that the most pessimistic prophecies were unhelpful.
"We need to keep a perspective on this and I think some of the talking down of the economy to the point almost where people are talking about Armageddon-type scenarios really needs to stop."
Speaking at a tree-planting ceremony to mark the centenary of the National University of Ireland in Dublin's Merrion Square, Mr Cowen said: "We need to ensure we maintain confidence in our own ability to manage our affairs."
However, Fine Gael finance spokesman Richard Bruton rejected the charge that the Opposition was talking down the economy and insisted that it was bad policies that had driven it down.
"The biggest danger is a Government that remains in denial. If they don't recognise the problem the danger is that they will go for soft-option policies that will simply paper over the cracks."
Speaking at a press conference which outlined how his party would respond to the downturn, Mr Bruton said that responsibility for the crisis lay squarely with the Taoiseach and the Government.
"In the space of four years at the helm at finance, Brian Cowen steadily and deliberately pursued policies that sabotaged our economy's capacity to weather external shocks. Having steered the economy into recession there is very little confidence that he can steer us out of it again," he said.
It also emerged yesterday that senior Irish bank executives are looking for Government support to improve liquidity in the mortgage lending markets.
The proposal under discussion would entail the Government providing funding to banks for home lending. The Government would in effect hold mortgage deeds by way of security.
Well-placed sources in the financial community said the plan to overcome the logjam in international money markets mirrored well-established schemes in Germany and France.
Discussions among high-level bankers are tentative and there is no formal proposal to Government on the table. However, efforts to develop a detailed proposal are understood to have gathered pace in recent days.
Senior sources in a number of quarters said liquidity generated through the initiative, if adopted, would be ringfenced to finance first-time mortgages.
"At a European level, everyone is looking at how you can revive the securitisation market [resale of mortgage debt] because it's effectively frozen," said one source.
The likely response of the Government is unknown. A spokesman for the Department of Finance said it was "not aware" of any such proposal. If such a proposal was made it would be considered "in due course" like all proposals, he said.