No joy for tracker holders as ECB rate cut unlikely
HOMEOWNERS with tracker mortgages are likely to have to wait until the new year for a new cut in European Central Bank rates.
The governing council of the ECB meets on Thursday but it is not expected to cut rates.
This is despite a fall in eurozone inflation and lower than expected growth in the 17 member countries that use the currency.
Each 0.25pc cut in interest rates translates into a €15 reduction in monthly repayments on every €100,000 borrowed for those with trackers.
Tracker rates automatically fall when the ECB cuts its main rate. There are around 400,000 mortgage holders with trackers.
Only a handful of the 71 European economists polled by the news agency Reuters last week said the ECB will trim its main rate from 0.75pc to 0.5pc this week.
The economists were split down the middle over the possibility of a rate cut early next year.
Economist Dermot O'Leary of Goodbody Stockbrokers said he did not expect a rate cut announcement this week, but there was a chance of one as early as the first three months of next year.
The weakness in the euro area's economy and the unexpected drop in inflation had led to expectations that the ECB may be prepared to cut interest rates again this week.
However, economists now expect the ECB to keep rates unchanged, preferring to save their last bullet until absolutely necessary.
The Frankfurt-based ECB cut its benchmark interest rate to a record low 0.75pc back in July.
The July reduction and two others in the past year have seen tracker 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. The banks don't have to pass on ECB rate reductions 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. And few of the other lenders have passed on the recent eurozone cuts to their variable rate customers.
Last week the Organisation for Economic Cooperation and Development (OECD) said the ECB should cut interest rates further and commit to keeping them low for an extended period as the eurozone's economy weakens and the risk of deflation grows.
The Paris-based think-tank said in a report: "In the euro area, there is a need for easier monetary conditions given the prospects for weak economic activity and growing disinflationary pressures.
"The ECB should lower its refinancing rate by a further 25 basis points, possibly in conjunction with a negative deposit rate, and issue forward guidance on maintaining the accommodative policy stance for a long period," the OECD said.