The European Central Bank’s (ECB) hike in interest rates could help “contain” house prices and bring down inflation, the Tanaiste has said.
The ECB announced a 0.75% increase in interest rate, the third rise this year.
Leo Varadkar said that while the rise will not be welcomed by mortgage holders or borrowers, it will help bring down inflation and could bring down house prices.
The governing council raised rates by three quarters of a percentage point later on Thursday.
This will bring the main lending rate to 2%.
The move will mean Irish householders will see their mortgage rates rising.
“The European Central Bank is independent, it’s in charge of managing the stability of the Euro system and bringing inflation down, so the decisions they make are independent of government,” Mr Varadkar said on Thursday.
“Obviously, it’s not going to be welcome for people borrowing and mortgage holders.
“I’m one of those people that gets that letter in the post a few days after the ECB makes a decision, telling me that the mortgage has gone up and we absolutely understand that this isn’t good news for people who have mortgages.
“But it will have other effects. It will help to bring down inflation for example, for pensioners it will mean a better return on their savings and I do think we need to bear in mind those aspects of interest rate policy.
“But also probably help to contain house prices and maybe even bring them down a bit for people that are buying for the first time.”
Mr Varadkar said there has been a prolonged period of low interest rates, which he said has now come to an end.
“Nobody wants to see interest rates going too high at the same time,” he added.
Sinn Fein’s spokesman on finance, Pearse Doherty, said the rate increase will have an immediate impact on households with a tracker mortgage.
Speaking during leaders’ questions in the Dail, Mr Doherty said that interest rate hikes by the ECB provide a “bonanza” for Irish banks.
“The financial outlook and position of our banks is strong while for households it’s not,” he added.
“Those variable rates are at the mercy of these banks and the decisions they make in the coming weeks and months could increase the mortgage repayments on households by thousands of euro, households that are already struggling to make ends meet.
“Banks need to do the right thing. They need to not pass on these interest rate hikes and they need to make that clear to their customers.”
He urged the Tanaiste to call on the Irish banks not to pass on the interest rate hikes to customers, and to examine targeted and time-bound mortgage interest relief for tracker mortgage customers.
Mr Varadkar said that he agrees that banks should not use rising interest rates as an opportunity to makes “excessive profits”.
“In terms of any decision on variable rates, those of course are commercial decisions for the banks involved,” the Fine Gael leader added.
“I agree that banks shouldn’t be using rising interest rates as an opportunity to make excessive profits. I absolutely agree with you on that.
“But they do need to take other factors into play as well.”
He added, however, that he cannot make promises of bringing in mortgage interest relief.
“I’d love to bring back mortgage interest relief for people who have tracker mortgages, I would benefit myself by the way, as would a huge number of my constituents in Dublin 15.
“But I can’t make those kinds of promises. We had mortgage interest relief in the past when interest rates were much higher than they are now.
“We now have a prolonged period of very low interest rates coming to an end and we’re seeing interest rates go back to something that would have been considered much more normal five or 10 or 15 years ago.”
Earlier on Thursday, Minister for Public Expenditure Michael McGrath said that banks and lenders will respond to the interest hike in a way “they see fit”.
He added: “They (ECB) do what they believe is necessary to get inflation under control and while there is pain for many, many people and businesses, it is in all of our interests that inflation is got under control because it is insidious.
“If inflation becomes embedded, and we started to chase it, we know that is the road to ruin and so we have to get inflation under control.
“We will do what we need to do in terms of responsible fiscal management and then ECB will manage monetary policy and we just have to deal with the consequences of that by supporting people in the best way that we can.”
Asked if the ECB interest rate will wipe out all the budget day supports for householders, Mr McGrath added: “Not necessarily. It depends on individual circumstances.
“It depends on the amount of the loan balance that’s outstanding.”
READ NEXT:
Special rule could see politicians drinking later than punters despite new laws
Gardai braced for revenge attack after Tallaght submachine gun ambush
Bank holiday Sunday and Monday opening hours for Tesco, Aldi, Lidl, and more
Man told gardai at crash scene 'I've killed my best friend - I wish it was me'
All you need to know about Dublin Marathon road closures and alternative routes
Get breaking news to your inbox by signing up to our newsletter
