The European Central Bank announce 0.75% hike to interest rates - How it will affect your pocket

The European Central Bank announced a third hike to interest rates on Thursday.

Following a meeting this afternoon in Frankfurt, it confirmed that interest rates would rise a further 0.75 per cent.

It marks the third rise in rates since the summer, adding a total of €1,620 a year to the cost of a tracker mortgage taken out during the boom, with a fourth hike before the year ends not being ruled out.

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The ECB began raising rates in July with a 0.5 per cent hike, bringing the deposit rate back to zero and the main lending rate to 0.5 per cent in one move.

It followed that up with a 0.75 per cent increase at the last meeting in September, bringing the main borrowing rate to 1.25 per cent.

Hand holding a little house with an orange roof. Conceptual image with space for copy. (gettyimages.ie)

With Thursday's 0.75 per cent increase bringing the base rate to 2 per cent.

Speculation also points to a further 0.5 per cent increase being announced at the bank's next meeting in December.

The increase will add around €600 to the annual cost of a mortgage and affects around 500,000 tracker and variable rate mortgage holders.

The ECB said it felt it had no choice but to introduce another rise to contain inflation running five times higher than its target due to soaring energy prices, the healing of supply chains off the back of the Covid-19 pandemic and Russia's invasion of Ukraine.

The two recent rate rises have seen a family with 15 years left and €150,000 to pay on a tracker facing an extra €84 in monthly payments or an additional cost of €1,000 annually.

This is for a tracker with a 1 per cent margin over the ECB refinancing rate.

Following the introduction of the 0.75 per cent increase, another €50 will be added to the monthly costs of the mortgage.

This will mean monthly tracker mortgage costs have increased by €135 since the summer or €1,620 annually.

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