ECB quashes hopes of an early interest rate cut
HOMEOWNERS hoping for a cut in their mortgage payments are likely to be disappointed again next month.
The European Central Bank (ECB) yesterday left interest rates on hold at 1pc, and it now seems borrowers will have to wait until April or May for a cut.
Another decrease in rates would have directly benefited 400,000 tracker mortgage holders, along with some of the 250,000 homeowners on variable rates.
But ECB governors last night admitted they did not even discuss reducing interest rates at their latest key monthly meeting.
The ECB usually softens up markets at least a month ahead of an impending rate cut, either by pointing to the slowing of inflation -- which creates a good climate for cutting rates -- or by saying governors had discussed a rate cut.
Yesterday ECB chief Mario Draghi said the ECB's powerful 23-man council "didn't discuss any prospective or current change in interest rates" at its meeting.
It is believed that issues on how to resolve Greece's debt impasse dominated the agenda, and Mr Draghi left Frankfurt almost immediately after the monthly press conference so he could attend last night's talks of eurozone finance in Brussels. Mr Draghi's comments that inflation was likely to stay above the ECB's target level for "several months to come" was also interpreted by some as a sign that the ECB was unlikely to opt for an interest rate cut any time soon.
This is because a cut could feed inflation by giving people more cash to spend.
There was a glimmer of hope for borrowers, however, as Mr Draghi repeatedly stressed that "uncertainty was high" and the economy remained risky.
If the economy is derailed and growth slows, then inflation will ease and the ECB may feel the climate is right to cut interest rates. "A rate cut is not going to happen in March. But there will be one in the next three months," said Alan McQuaid, an economist with Bloxham Stockbrokers.
He said that Mr Draghi's comments left the impression that some central bankers were uncomfortable with rates falling below 1pc.
Each 0.25pc reduction in eurozone rates reduces monthly repayments by €30 on a €200,000 tracker mortgage. Those with trackers automatically benefit from a rate cut.
The 250,000 homeowners with variable rates are at the mercy of their lenders.
Most lenders only passed on at least some of December's ECB rate cut to their variable-rate customers, with Ulster Bank passing on 0.2pc and Bank of Ireland passing on between 0.10pc and 0.15pc.
But variable-rate homeowners with KBC Bank and National Irish Bank did not benefit from the reduction.
Permanent TSB did cut its variable rates by 0.7pc but still has the highest variables in the market at 5.19pc.
Research by the Central Bank released last month, found that some variable rates are up to 3pc higher than tracker rates.
This means that home owners with a €200,000 mortgage on a variable rate with Permanent TSB will be paying up to €360 more a month in repayments than a householder on a tracker rate who holds a mortgage loan of the same size.