Money markets betting heavily that European Central Bank will increase interest rates at September 14 meeting

A 10th interest rate increase will pile pressure on borrowers, especially those on trackers, mortgage holders trapped with vulture funds and new buyers.

Money markets now think there is a 71pc chance of a rate rise of 0.25 percentage points this week after data from the ECB on Tuesday showed it expects inflation in the 20-nation eurozone to remain above 3pc next year.

The main mandate of the ECB is to try and keep inflation at around 2pc.

The new data bolsters the case for a 10th consecutive interest rate increase.

Just a week ago money markets were pricing in a 30pc chance of a rate rise, according to a broker note from specialist bank Investec in Dublin.

Each 0.25 percentage point rise in mortgage rates adds around €156 to the annual repayments on each €100,000 borrowed over 25 years.

The average amount outstanding on a tracker mortgage is €133,000.

Nine ECB rate hikes so far have added €280 a month to the payments on this size of mortgage. Over a year, that works out at an extra €3,360 in payments.

Meanwhile, mortgage rates in this country held steady in July but borrowers have been warned that they are due to rise again in the coming months.

The average interest rate on a new mortgage was little changed in July from the previous month, according to the Central Bank.

It was 4.06pc in July, compared with the eurozone average of 3.86pc.

This meant Ireland had the seventh lowest mortgage rates in the eurozone, alongside Luxembourg.

Despite the European Central Bank’s (ECB) key refinancing rate going to 4.25pc, banks here have only passed on 1.5 percentage points of the increase.

But Daragh Cassidy of price-comparison and brokerage site Bonkers.ie said rates here were very high before the ECB stated its rate-rising cycle last July.

There are fears that the ECB will raise its rates again by 0.25 percentage points today. It will be the 10th increase since last July if it happens.

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Mr Cassidy said it was good news that banks not had raised mortgage rates more here despite the unprecedented rise in European rates.

“Given that the main ECB lending rate, off which mortgages and trackers are priced, is now 4.25pc, it’s amazing how relatively low mortgage rates in Ireland still remain,” he said.

“Despite the ECB hiking rates by 4.25 percentage points since last July, the average rate in Ireland has only gone up by around 1.50 percentage points. For now at least.”

The average rate for someone applying for a mortgage today is closer to around 4.5pc, he said.

Mr Cassidy said that even if the ECB does not increase its key lending rate this week it may do so later in the year.

This would take the ECB’s main lending rate to 4.50pc, which means the average tracker customer could be paying a rate of around 5.6pc or 5.7pc before the end of the year.

“And even if the ECB doesn’t hike rates again, it’s likely the main lenders will still hike rates once or twice more over the coming months for their variable-rate and new fixed-rate customers as they’ve only passed on around half of the ECB rate hikes so far,” Mr Cassidy added.