Around 500,000 Irish mortgage holders are facing increased payments after this afternoon’s interest rate hike.

It is the first time the European Central Bank has increased rates in 11 years.

It had been hoped it would increase rates by 0.25% - however, this afternoon the bank went further, increasing them by 0.5%.

The regulator is making the move in a bid to tackle runaway inflation, which currently sits at just over 8.5% in Europe and 9% in Ireland.

Inflation

Economist Jim Power said it’s just the beginning of rate increases.

“This won’t be the end of it because inflation is still becoming deeply embedded in the Euro area,” he said.

“I think the ECB will take a view that rates will have to at least rise from 0% at the moment to 2% over the next six to nine months to try and bring inflation back under control.

“So, I think Irish mortgage holders should be factoring in an increase of up to 2%.”

Mortgage

The change will affect mortgage holders on standard variable or tracker rates.

Those on fixed-rate mortgages should not see any change in their payments for now.

The interest rate hike will be the first in Europe since 2011.

It will come into force at lunchtime today and follows a cut to Eurozone economic growth projections for 2022 by the European Commission.

Rates

Mr Power said the rates could increase by more than 2% in time.

“The European Central Bank will move quite aggressively on the rates front, taking rates from around 0% to 2% and at that stage take a breath to see if it is helping bring inflation back under control,” he said.

“But there are no guarantees over the next 12 to 18 months that 2% will be enough to do the job.”

The ECB has already signalled plans to increase rats once again in September, with markets expecting a further 0.5%.

Currently, it is not expected to go beyond 1% this year and 1.25% by the midpoint of next year.