Tens of thousands of Irish tracker mortgage holders will immediately benefit from a cut to interest rates by the European Central Bank (ECB) on Thursday.
The bank’s widely anticipated rate cut, following a board meeting in Frankfurt, will also put pressure on Irish lenders to lower rates for those with fixed and variable home loans.
The ECB said it was cutting rates by 0.25 per cent, the second such reduction in four months. And while it cautioned that inflationary pressures across the euro zone remain, particularly in the services sector where wages are rising rapidly, a further cut is possible later this year.
“We are not pre-committing to a particular rate path,” ECB president Christine Lagarde told a press conference. “We are looking at a whole battery of indicators,” she said, while noting that a downward trajectory is “pretty obvious”.
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Executive board member Isabel Schnabel added that rate cuts could not be mechanical and must “rest on data and analysis” while ECB chief economist and former governor of the Irish Central Bank Philip Lane said the return to the target rate of 2 per cent inflation was not yet “secured”, though he cautioned that high borrowing costs should not choke the economy.
Tracker mortgage holders will immediately benefit from the 0.25 per cent cut. They will also benefit soon from a separate 0.35 percentage point cut as a result of a technical adjustment as Frankfurt moves to cut the gap between its main refinancing operations rate and its deposit rate.
Thursday’s rate cut will see tracker mortgage holders’ repayments fall by about €13 per month for every €100,000 still owed, with the rate reductions automatically passed on by lenders within 30 days.
A borrower with an outstanding loan of €250,000 over a repayment period of 15 years is likely to see the cost of their mortgage fall by around €33 a month.
The second larger rate cut will lead to even bigger reductions for tracker holders and, when the 0.25 per cent cut is added to the 0.35 per cent reduction, the savings per €100,000 owed on a tracker with 15 years left to pay come in at €31 and will see a homeowner with a €250,000 mortgage better off by €77 a month or €924 a year.
However, borrowers on variable rates and those coming off fixed rates or looking for a new mortgage may have to wait some time to see any benefit, industry analysts have warned.
“Today’s rate cut was pretty much expected by the ECB. And it’s likely to reduce rates at least one more time before the end of the year as inflation continues to ease,” said Daragh Cassidy of switching and comparison website bonkers.ie.
He said the move would “also put further downward pressure on variable and fixed rates. We may not see any reductions immediately. But we’re almost guaranteed to see some rate cuts from the main banks here over the coming weeks”.
Mark Coan of financial services company moneysherpa.ie said that while the rate hikes over the last two years were a “whirlwind”, the decreases were likely to be much slower.
He said markets were expecting another 0.25 per cent cut before Christmas with rates likely to level out at around 2.5 per cent by the end of 2025.
“This means mortgage rates are set to come down for buyers and existing mortgage holders, but maybe not as much as they hoped,” he said.
Rachel McGovern of Brokers Ireland welcomed the cut but pointed out that the ECB interest rate hikes of recent years remained “painful” for all mortgage holders.
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