Minister for Finance Michael McGrath has called on banks to make sure mortgage holders do not fall into arrears following the "dramatic" increase in interest rates.

His remarks come after the European Central Bank hiked rates by a quarter of a percent to 4.25% yesterday as it continues to fight inflation.

Mr McGrath said: "I acknowledge the dramatic increase of interest rates over such a short period of time is having impact on people.

"We need the banks and also the non-banks to work with borrowers now and make sure that solutions are arrived at because the overwhelming majority of people are making a genuine effort to pay their mortgages.

"They should not be allowed to fall into arrears because of changes in interest rates."

He said the higher rates were coming at what is a "very challenging period" for households.

Asked about whether the Government could introduce mortgage interest relief, Minister McGrath said he would be working with his colleagues to examine the best use of resources in the Budget.

But he indicated there would be further supports for households on energy bills.

"We reduced the rate of VAT on gas and electricity," Minister McGrath said.

"That is due to expire at the end of October. We have a decision to make in relation to the future of that support on Budget.

"The electricity credits, we have four of them so far, they have been a very successful way of getting cash to people and reducing the impact of high energy costs.

"We will also consider if it is appropriate to provide further energy credits in the budget."

Minister McGrath indicated there would also be targeted supports for the less well off.