Home borrowers told higher interest rates are on the way:

MORTGAGE holders have been warned to prepare for higher interest rates, after the European Central Bank (ECB) hinted at a change of tack.

The ECB has kept its key lending rate at zero for two years now, but there are indications that it is about to change course in a move that is set to cost householders thousands of euro.

A 0.5pc rise will add almost €100 a month to the repayments on a €300,000 mortgage.

People on variables would be wise to consider fixing now before rates rise. Those already on fixed rates will not be affected while tracker customers should do nothing, said Karl Deeter of Irish Mortgage Brokers.

Variable mortgage rates here are some of the most expensive in the world, with banks charging nearly twice the average in the euro currency area.

The ECB dropped its promise to buy more bonds, a move to wean the eurozone economy off its protracted stimulus.

Above-trend eurozone growth and continuing improvements in the domestic labour market have prompted the change in tack.

Fears of higher eurozone rates were raised when ECB president Mario Draghi (pictured inset) left its key lending rate unchanged, but indicated that stimulus in the region could come to an end in the near future.

And in a sign the interest rate environment is changing, Ulster Bank is set to announce today that it is increasing the interest it will pay on its leading savings account.

Savers have been the big losers in the era of super-low interest rates.

Ulster Bank is hiking the interest rate on its one-year fixed-term deposit account from 0.20pc to 0.60pc, one of the highest on the market and represents a 200pc rise. It is the first rise in savings rates in years.

The leading mortgage broker body has also warned mortgage holders to plan for higher rates, a move that will affect those with trackers and variable rates.

An ECB move will see new fixed rates deals become more expensive. But Brokers Ireland said any rise in rates were likely to be small initially.

Director of financial services at Brokers Ireland Rachel McGovern called on banks to drop their rates ahead of ECB increases. She said the Irish market was suffering from low levels of banking competition.

KBC Bank economists Austin Hughes agreed “the ECB is signalling that it is on a slow path to a rise in interest rates”.

It will probably be the middle of next year before rates rise, but he advised mortgage holders to factor in higher rates.