independent

Thursday 24 April 2014

ECB looks at interest rate cut for mortgages in new year

HOMEOWNERS have been given renewed hope of a new year cut in eurozone interest rates.

Another reduction would be a huge boost to tracker-mortgage holders, who benefit every time rates decrease.

The ECB yesterday decided to keep its key rate at a record low of 0.75pc.

But for the first time in months the issue of whether to bring the rate down again was discussed by the governing council.

At recent meetings, cutting rates had not even been brought up, according to ECB president Mario Draghi.

Each 0.25pc cut in interest rates translates into a €15 reduction in monthly repayments on every €100,000 borrowed for those with trackers. There are around 400,000 mortgage holders with trackers.

Mr Draghi said yesterday: "Economic weakness in the eurozone is expected to extend into next year. A gradual recovery should start later in 2013."

Mr Draghi said the ECB now sees the eurozone economy shrinking by 0.3pc. Previously, the bank had projected growth of 0.5pc.

The ECB boss said rates were not lowered because of high indirect taxes and increasing energy prices in some eurozone countries.

"There was a wide discussion . . . but the consensus was to leave the rates unchanged," he said.

Economist with KBC Bank Austin Hughes said a rate cut was not imminent but was a strong possibility in the first three months of next year.

"The ECB governing council is alive to the possibility that interest rates may need to be lowered. The outlook is weak on the economic front and inflation is subdued, which leaves open the possibility of a rate cut," Mr Hughes said.

Expecting

Economist with Merrion Stockbrokers Alan McQuaid said the market was expecting a new ECB rate reduction in the first quarter of next year.

The ECB cut its benchmark interest rate to a record low of 0.75pc in July.

The July reduction and two others in the past year have seen repayments on every €100,000 fall by €45 a month.

But the 250,000 people with variable rate mortgages have not all been so lucky. Banks don't have to pass on ECB rate cuts to variable rate mortgage holders.

Both AIB and Bank of Ireland have increased variable and loan-to-value rates by 0.5pc each in the past two months.

Irish Independent

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