The European Central Bank has confirmed what it's been hinting at strongly for quite a while now.

The bank is going to start raising interest rates for the first time in a over a decade next month.

So, what does it all mean for consumers and mortgage holders across the bloc?

First moves

The ECB has come under fire for what many believe has been its slow reaction to the inflationary environment.

Prices across the euro zone were rising at an annual pace of over 8% according to the latest figures.

That's more than four times the target rate of 2% that Central Banks like to keep inflation at.

The bank had stuck to the argument that inflation was transitory and had more to do with supply chain issues arising from the pandemic and the reopening of economies.

That argument was more or less abandoned after the Russian invasion of Ukraine.

But the debate then shifted to what level of interest rate hikes would be appropriate in the context of an economy that could be at risk of contracting with a war raging on its doorstep.

It's given some indication of how it intends to proceed now.

The bank is going to start gently, raising rates by 0.25% at its meeting in the middle of July.

We more or less knew that was coming and an additional rate hike in September was expected.

However, it has changed the parameters somewhat for what's coming in September.

It has said that if the inflation outlook persists or deteriorates, "a larger increment will be appropriate at the September meeting".

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That came as a bit of a surprise.

What's more, it's anticipating that a "gradual, but sustained path of further increases in interest rates will be appropriate" beyond that.

Will my mortgage interest rate go up in July?

It's likely that the bank will focus first of all on the deposit rate, which is at -0.5%.

This will almost certainly be brought back to zero by September.

That's the rate that financial institutions get for putting excess money on deposit with the ECB (although they've been charged for it in the era of negative rates).

The rate that affects our borrowings is currently at zero.

It's now a question of when they opt to start raising that rate.

In light of the new guidance given by the bank when it comes to the September meeting, it could start to nudge that rate upwards from then, or it could even raise it in July in tandem with the deposit rate.

As soon as that rate moves upwards, the cost of variable and tracker mortgages will rise.

ECB President, Christine Lagarde

What difference would that make to my tracker?

Joey Sheahan, Head of Credit at and Author of the Mortgage Coach, crunched some numbers on it.

A borrower that has €300,000 outstanding on a tracker rate of 1%, with 20 years remaining, would currently have a monthly repayment of €1,379.

"A 0.5% interest rate rise would increase this to €1,447 - which is an annual increase of €816, or €16,320 over 20 years," he explained.

"A 1% rise in the ECB's benchmark rate would increase the monthly repayments to €1,517, which is an annual increase of €1,656 or €33,120 over 20 years," he added.

Trackers are no longer issued so someone taking out a mortgage on a free-floating rate more recently would be on a variable rate.

Mr Sheahan used the example of a similar sized mortgage on a variable rate of 4.25% with 30 years remaining in the term.

Such a mortgage holder would have monthly repayments of €1,475.

"A 0.5% interest rate rise would increase this to €1,564, which is an annual increase of €1,068 or €32,040 over 30 years," he said.

"A 1% rise in the ECB's benchmark rate would increase the monthly repayments to €1,656 which is an annual increase of €2,172 or €65,160 over 30 years."

What about fixed rates?

Some fixed rates have started to move upwards in recent months as the cost of 'longer term' money has started to increase.

That process is likely to accelerate now as the ECB confirms that its bond buying programmes will end and it signals higher interest rates.

But there's still very good value to be found in fixed rate mortgages and there has been a surge in switching activity of late.

"We are seeing a steadily increasing number of movers/second time buyers seeking mortgage approvals with long term flexible fixed rate options attached. This follows the trend set by existing mortgage holders seeking to protect themselves against the imminent future interest rate increases," Trevor Grant, Chairperson, Association of Irish Mortgage Advisors (AIMA) said.

Rachel McGovern, Director of Financial Services at Brokers Ireland said substantial savings were to be found by switching provider and fixing.

"In the last 10 years we have come from the average fixed rate being as high as 4.85% to today where the average fixed rate is 2.59% on new fixed rate agreements," she pointed out.

She also suggested examining the option of fixing for longer periods with fixed rates up to 30 years now available.

"Long-term fixed interest rates, relatively new in Ireland, have brought best value in the Irish market in recent years," she said.

How far are rates likely to go?

Central Bank statements always contain plenty of wriggle room.

And so they should as the situation can change very quickly and they need to be able to change course to deal with new scenarios.

But it now looks like we're on a definite path towards an era of more expensive money.

The main borrowing rate in the UK has already been raised to 1% by the Bank of England and the US Federal Reserve has moved rates into a similar ballpark.

And they have likely not finished yet.

It would not be unreasonable to suggest that we're on a similar path here.

Austin Hughes, chief economist with KBC Bank Ireland, referring to today's inflation figures from the CSO, said the pace of price increases showed no sign of abating.

"With fuel prices moving even higher in early June and knock-on impacts of higher transport costs and global supply problems yet to be fully seen, the likelihood is that Irish inflation has not yet peaked," he explained.

"It seems probable that headline inflation could push close to 9% and might even threaten 10% depending on the vagaries of global energy markets," he added.

He added that any pullback was likely to be modest and may be slow to materialise, particularly in light of spillover effects into areas like mortgage rate increases.

On the other hand, some point out that the bank may be too hasty in signalling rate rises at a time of such uncertainty in the overall economic outlook.

"The possibility of a larger increase from September raises the risk of an ECB policy mistake," Bill Papadakis, Macro Strategist with Swiss Bank Lombard Odier said.

"Conditions in the euro area are different. GDP is still lower than its pre-pandemic levels, wage growth is much more subdued, and growth is threatened by the war in Ukraine. Crucially, the war is fueling higher energy prices, which in turn are driving high inflation in Europe. More costly energy eats into consumers' real incomes, undermining growth, which is likely to suffer if the ECB goes ahead with aggressively tighter monetary policy."

If that comes to pass, the ECB may be forced to reassess how aggressively it raises interest rates in the medium term.

In the short term, rates are only going to go one way and that's upwards.

How far? Nobody really knows.