Personal Finance

Friday 1 August 2014

Tracker mortgage holders in line for rate cut

Charlie Weston, Personal Finance Editor

Published 15/04/2014|01:57

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Mario Draghi, President of the European Central Bank (ECB), addresses a press conference following the meeting of the Governing Council in Frankfurt am Main, western Germany, April 3, 2014. The European Central Bank takes exchange rates into account when setting interest rates, but has no firm target for the euro-dollar, Draghi said.      AFP PHOTO / DANIEL ROLAND        (Photo credit should read DANIEL ROLAND/AFP/Getty Images)
ECB president Mario Draghi said that a strengthening of the euro “requires further monetary stimulus”.

TRACKER mortgage holders are in line for a summer boost from a new cut in eurozone rates.

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International money markets are convinced that the European Central Bank (ECB) will be forced to reduce its key lending rate in June.

That decision will be a huge fillip for 375,000 people who have tracker mortgages, and who see the cost of repayments fall every time the eurozone interest rate is reduced.

The ECB rate is at a record low of 0.25pc, but it is now expected to fall to 0.1pc in June.

This would mean a family with a €250,000 tracker mortgage will see repayments fall to €840 a month, a drop of €20. This is an annual saving of €240.

Under tracker contracts, each change in the ECB rate has to be passed on to mortgage holders.

And mortgage experts said it would be difficult for banks to increase variable rates if there was another ECB reduction as the gap between tracker and variable rates has widened to more than €400 a month.

ECB president Mario Draghi said at the weekend, following the spring meetings of the International Monetary Fund and World Bank, that a strengthening of the euro “requires further monetary stimulus”.

European central bankers said at the weekend’s meetings in Washington that if the ECB takes further action, it is more likely to cut interest rates.

A sharp drop in inflation in the eurozone in January prompted fears of a dangerous cycle of |deflation taking hold and has put pressure on the ECB to act.

 KBC Bank economist Austin Hughes said the international money |markets will force the ECB to cut rates, even if the bank does not want to, because markets were worried about the threat of deflation in the eurozone and the strength of the euro currency.

“I think the ECB will be pressurised into a cut in June due to the deflation and the strength of the euro.

“Our best bet is that it will be in June,” Mr Hughes said.

Stimulus

He expects a reduction in the ECB key lending rate to 0.1pc, from 0.25pc at present.

And economist with Goodbody Stockbrokers Dermot O’Leary said he expects a cut in June.

“If the euro gets any stronger the cut will be in May, but it is more likely to be in June,” he said.

Karl Deeter, of the Irish Mortgage Brokers, has calculated that the five cuts so far in the ECB rate since the summer of 2011 have given a massive boost to the thousands of householders who have trackers.

The cuts in interest rates have been worth about €6,400 a year per household with a tracker mortgage, said Mr Deeter.

“The ECB has delivered a household stimulus scheme – but the Government has taken this back in taxes and charges,” he added.

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