Lenders set to withhold interest rate cut by ECB
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IN two days' time the European Central Bank is expected to cut interest rates for the fourth month in a row.
The expectation among economists is for a 0.5 percentage point cut. If this comes to pass it will mean rates will have fallen by a total of 2.25pc since the ECB started reducing rates in October.
An ECB cut of 0.5 percentage points on Thursday will see ECB base rates falling to 2pc.
That's great news for homeowners but bad news for savers.
The likelihood of a 0.5 percentage point cut in ECB rates increased when the Bank of England cut rates by this amount last week to take base rates in Britain to 1.5pc.
Also, eurozone inflation figures out last week saw prices rises well below the target figures set by the ECB.
A further fall in rates will represent another windfall for Irish mortgage holders. Tracker mortgage holders are set to see their rates fall, but most standard variable rate homeowners might not be so lucky.
Ulster Bank and its sister operation First Active passed on only 0.5 percentage points of the last 0.75 percentage points cut.
Permanent TSB warned before Christmas that it is unlikely to pass on future cuts in rates to its standard variable rate customers. Others may follow suit.
If you have a tracker mortgage you will be on the pig's back, even if there is nothing but bad news everywhere else.
Take the example of a €300,000 mortgage with a 1pc margin over the ECB base lending rate (30-year term).
A 0.5 percentage point drop in interest rates would reduce monthly mortgage payments by over €80 per month.
Repayments
What this would mean is that since September mortgage repayments would have fallen by about €400 per month.
Over a year this would amount to between €4,000 and €5,000 less being paid on mortgages by tracker holders, according to calculations by Frank Conway, a director at Irish Mortgage Corporation.
Little wonder then, that the most recent consumer sentiment index rose for the fourth month out of five.
This is particularly good for first-time buyers, who are also set to be boosted by higher mortgage tax relief from this month.
Savers will lose out as deposit rates are sure to fall. This comes on top of DIRT tax going from 20pc to 23pc from this month.
- Charlie Weston
