Bank chief suggests ECB will cut rate of interest
Published 27/09/2011 | 05:00
THE prospect of a eurozone interest rate cut moved a step closer last night after one of the most influential voices in the ECB refused to rule one out.
Austrian central bank chief Ewald Nowotny, a conservative with close ties to the Germans in the ECB, said a reduction in the ECB's key interest rate cannot be excluded, as the eurozone faces an ongoing debt crisis and prospects of slower growth.
"The ECB does not make any commitments in advance and a reduction in rates cannot be excluded," Mr Nowotny said.
More than 400,000 homeowners with tracker mortgages would benefit from a rate reduction that could come before Christmas. Another 200,000 on variable mortgages may also get a boost as lenders will be under pressure to stop increasing interest rates. Some may even pass on the cuts.
The ECB had hiked its rates by a quarter point in April and July, invoking risks of inflation, ending three years of record low rates to support the eurozone economies during the global financial crisis.
The governing council of the ECB, of which Mr Nowotny is a member, is due to meet next week when it could signal a cut from the current rate of 1.5pc.
Economists said homeowners could look forward to the prospect of a cut in interest rates in time for Christmas -- and possibly by November.
The prospect of a rate cut comes as Permanent TSB is considering allowing people to keep their tracker mortgage if they trade up to a larger house.
The lender, where six out of 10 mortgages are loss-making trackers, now wants to stimulate the property market by allowing some of its customers to transfer their tracker to a new property.
Tracker holders are repaying €500 less a month on a typical home loan compared to someone with a variable rate.
This means that any family that can afford to move and needs a larger home will likely extend the home they have instead of considering a move, which would see them losing their tracker.
The idea would be to allow them to keep the tracker for the original mortgage amount and avail of a standard variable rate to top up the loan for any additional money they need to buy a new house.
The offer, if it goes ahead, is likely to be limited to those who are not too deeply in negative equity -- where the value of the mortgage is greater than the value of the original property.
A spokesman for the bank confirmed that it was looking at the possibility of introducing a negative equity mortgage that would allow those who have a tracker to transfer that home loan to a new property.
Tracker rates are tied to the ECB rate, and can only move when it moves. Mortgage holders typically pay 1pc above the ECB. This means people have a rate of 2.5pc at the moment, compared with some of Permanent TSB variable rates which are close to 6pc.
The Central Bank is anxious that lenders do not actively market negative equity mortgages, fearing homeowners will again end up taking on excessive debt.
But Permanent TSB is desperate to deal with the fact that 60pc of its mortgages are trackers that cost the lender around €400m a year.
The lender has just ended an offer where tracker customers got a 10pc bonus if they overpaid their mortgage using a lump sum.