Tracker mortgage holders will immediately benefit from the 0.25 per cent cut in interest rates announced by the European Central Bank (ECB) this afternoon.
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.
Taoiseach Simon Harris welcomed the ECB’s move.
“Many households have experienced increases in their monthly mortgage repayments during a cost-of-living crisis,” the Taoiseach said. “As we move into an era of interest rate reductions, we need mortgage holders to feel the benefit.”
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He said he had written to the Irish banks and would be meeting them shortly “for a discussion on this”.
In an apparent response to the calls from the Taoiseach for banks to act swiftly and pass on rate cuts to borrowers, Banking and Payments Federation of Ireland chief executive Brian Hayes noted that “interest rates and pricing of lending is a commercial matter for each bank or nonbank lender that operates in the market place”.”
Over the last two years Irish lenders had “sought to take a balanced approach in the pass through of these rates mindful of the cost of living challenges which households have had to contend with”, Mr Hayes said.
“When comparing rates across the euro zone member states, banks in Ireland have passed through the third lowest increase in new mortgage interest rates between May 2022 and April 2024,” he said.
Minister for Finance Michael McGrath noted that there are about 186,000, tracker mortgage accounts, in Ireland and for this “very significant number of people” the cut would be “very welcome news” but that it came “against a backdrop of ten increases that amounted to 4.5 per cent”.
With regard to non-tracker customers, he said there was not homogenous treatment where rates were climbing.
“In the case of the main banks, for example, the pass through of those increases was probably between a third and a half overall of the increases at ECB level ... But of course, when it came to the non-lending nonbank sector, many of the investments on funds, the pass through on the variable side was 100 per cent.”
The rate cut will see tracker mortgage holders’ repayments fall by about €13 per month for every €100,000 still owed with a rate reduction passed on by lenders within 30 days. The anticipated move comes after 10 successive hikes which began in July 2022 and signals a significant shift in the monetary policy of the ECB.
Darragh Cassidy of price comparison website bonkers.ie said that as the cut in interest rates was well flagged, several mortgage lenders had already cut their fixed rates in advance of the move.
Tracker customers will also benefit from a 0.35 percentage point cut in September as the ECB has flagged that it’s reducing the gap between its main refinancing operations rate and its deposit rate by this amount, he added.
“Those on variable rates may have to wait a bit longer to see anything positive though. The main banks only passed on a fraction of the ECB rate hikes to their variable-rate customers in the first place,” he said.
Mr Cassidy said a degree of uncertainty remains “as to what the future path of rate reductions will be” but he expects “at least one or two more quarter point cuts before the end of the year”.
Irish savers have more than €150 billion on deposit with Irish banks but Mr Cassidy noted that “the vast majority of the money is in easy-access demand deposit accounts that are paying little to no interest”, he said. This is despite rates of up to 3 per cent being on offer from AIB and Bank of Ireland, and rates over 3 per cent being on offer from the likes of N26, Trade Republic and Raisin.
Rachel McGovern of Brokers Ireland said the reduction cycle by the ECB can be expected to be “minimal and slow, with little prospect of a return to the historically low rates that prevailed before July 2022”.
She said 80,000 homeowners coming off fixed rates this year will be facing higher than expected rates since “the interest rate world has changed utterly since they took out their mortgages a few short years ago“.
However, the next year could be brighter, she said. “If you’re on a fixed mortgage with a year or so to go you might come out of the fixed rate at a much better time,” she said.
According to Mark Coan of moneysherpa.ie “lending rates are set to hover around the 4 per cent mark for the foreseeable future”.
Martina Hennessy of brokers doddl.ie pointed to a significant discrepancy in the rates charged by lenders with some lenders attaching interest of 3.45 per cent and others charging over 7 per cent.
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