ECB delivers its second rate cut by quarter point in boost to borrowers

The European Central Bank delivered a second rate cut today, with hopes of more to come in the next few months.

The 0.25 percentage point cut is a boost to borrowers and comes after the ECB had increased rates 10 times up to last September.

The move means the bank’s refinancing rate, from which trackers are priced, comes down to 3.65pc.

In June, the ECB cut its refinancing rate, from which tracker mortgages here are priced, by 0.25 percentage points to 4.25pc. Later this month, tracker holders are in line for a special 0.35 percentage point reduction when the ECB makes a technical adjustment to its interest rates.

However, despite the two rate cuts and the special adjustment to the refinancing rate, many of those on trackers will still be paying hundreds of euro more than they were before interest rates stared rising.

This adjustment to the refinancing rate, to bring it more into line with the ECB deposit rate, is scheduled to be implemented next Wednesday, according to independent economist Simon Barry.

There are 180,000 customers with ­tracker mortgages, which is about a quarter of the mortgage market.

Managing director of broker Doddl.ie Martina Hennessy said: “The vast majority of mortgage holders in Ireland do not have a tracker rate but will also hope that the ECB reducing rates will result in Irish mortgage lenders following suit.

“Prior to the ECB drop in June, the main banks in Ireland had already decreased rates by up to 1pc in May.”

She said that ordinarily, variable rates — and deposit rates — should move in tandem with ECB base rate changes.

“However, fixed-rate mortgages are influenced by other factors, including the Euro Interbank Offered Rate (EURIBOR), deposits, operating costs, and competition. Currently, interest rates in the Irish market vary widely, ranging from 3.45pc to as high as 6.9pc,” said Ms Hennessy.

She said we may see some lenders at the higher end of the market reduce their rates, and pillar banks making adjustments to remain competitive. But it is unlikely that rates will return to the low sub-2pc levels seen just over two years ago.

Today’s reduction in the refinancing rate, and the special one-off adjustment in the same refinancing rate, will give tracker holders a total reduction of 0.60 points.

This will deliver savings of around €30 a month in repayments, based on a homeowner couple with 15 years left to pay and €100,000 outstanding.

Homeowners with trackers have been the worst hit by the ECB hikes. A family with €100,000 left to pay over 15 years will have had to pay €2,400 extra a year before June’s ECB rate cut.

Every 0.25 percentage-point cut in the ECB refinancing rate will shave €13 off monthly repayments for tracker holders, meaning a saving of €156 a year.

The cut from the ECB today will put pressure on banks and other lenders to cut their mortgage rates. It comes after new figures show that the average new mortgage rate across the market remained steady at 4.11pc in July.

Non-bank lenders will be under more pressure than other lenders to reduce their rates. This is because Finance Ireland and ICS have some of the highest lending rates in the market due to different funding models.

Customers with these lenders who are coming off fixed rates are set to be hit with variable rates as high as 6pc.

Credit servicer Pepper, which manages mortgages taken over by vulture funds, has promised to pass on ECB cuts. Its rates are up to 10pc.

Source: Charlie Weston, Irish Independent, 12/09/2024