Boost for mortgage holders as new ECB rate cut on the cards
Published 07/02/2013 | 04:00
Tracker mortgage holders may benefit from a cut in European interest rates later in the year, economists say.
The expectation is that there will be no cut in rates when the governing council of the European Central Bank meets in Frankfurt today. The bank is expected to leave its main rate at a record low of 0.75pc.
But economists feel that a new reduction in rates could be delivered before the summer, especially if the economies in the eurozone are hit by more bad news.
The bank decides rates for the eurozone, affecting the finances of 333 million people.
Any cut would be of massive benefit to the 375,000 people who have tracker mortgages here – as every cut in ECB rates translates into cheaper monthly repayments.
The last rate cut was in July, when it dropped to a record low of 0.75pc.
Each cut of 0.25pc reduces the repayments on a tracker mortgage by €15 a month on every €100,000 borrowed.
Tracker mortgage holders – who make up the majority of borrowers – have to have any changes in the ECB rate passed on to them.
Variable rate customers have not been so lucky as there have been a succession of increases in the past few months.
Close to 300,000 of those with a mortgage are on variable rates.
Economist with KBC Bank Austin Hughes said there would be another cut in rates if the eurozone economy weakens further.
"There is still a decent chance of a rate cut. There are still problems in the euro area and the euro is strengthening against other currencies.
"It is a close call, but there could be a cut in May or June. But we will need to see signs that things are getting worse."
Juliet Tennant, an economist with Goodbody Stockbrokers, said her firm's position was that there could be a rate decrease in March.
Since the ECB's last meeting a month ago, debt crisis countries such as Spain and Italy have successfully launched a series of bond auctions.
At the same time, global shares have turned in strong performances amid hopes that the worst of the eurozone debt crisis might be over.
Annual consumer prices also tumbled to 2pc last month, bringing inflation in line with the ECB's target.
This gives the ECB some room to cut rates if the recovery in the eurozone falters later in the year.