Irish News

Wednesday 20 August 2014

European Central Bank summer rate cut is 'a done deal'

Charlie Weston, Personal Finance Editor

Published 15/05/2014 | 02:30

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ECB President Mario Draghi
ECB President Mario Draghi

TRACKER mortgage holders will get a summer boost after it emerged that a cut in European Central Bank rates next month is a "done deal".

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

Around 375,000 householders have trackers here, which means the cost of their repayments falls every time the eurozone interest rate is reduced.

This would mean a family with a €250,000 tracker mortgage will see monthly repayments fall almost €20, down to €840 a month.

Over a year, the savings would amount to €240.

A June rate cut is "more or less a done deal", sources in Germany said.

ECB insiders in Frankfurt said it was preparing a rate cut, along with the ECB's deposit rate going negative for the first time.

There will also be targeted measures to help small and medium-sized firms.

Cutting the ECB's deposit rate below 0pc and into the negatives would be an attempt to force banks to take money out of the ECB and lend it out in the eurozone economy.

The ECB is concerned by the euro currency's strength, and low inflation in the zone. The bank is also concerned about weak lending to SMEs.

Under tracker contracts, each change in the ECB rate has to be passed on to those with these mortgages.

However, the situation for those who have variable and loan-to-value mortgages rates is less certain.

Permanent TSB shocked homeowners last month when it said some 70,000 borrowers will end up having to pay more every month after it said it was hiking its variable rate from June.

Interest charged to its existing customers on variable rates will jump from 4.34pc to 4.5pc, a move that will mean monthly repayments will go up by around €18 for every €200,000 of mortgage debt.

Meanwhile, a new study has found that homes for first-time buyers are now at the most affordable level for six years.

A typical first-time buyer couple needs to spend 19pc of their after-tax income to afford a mortgage, DKM Economic Consultants calculated in a study for lender EBS.

The report also found that almost half of all property transactions were in Dublin or Cork last year.

Repossess

Meanwhile, ratings agency Fitch said banks here were more likely to repossess properties.

“The signs are that lenders are becoming more willing to consider taking properties into possession,” Fitch said in a report on the Irish mortgage market.

It said changes to the law on repossessions mean that “lenders have begun to selectively enforce their security over properties”.

But it expects legal actions by banks to take control of homes and buy-to-let properties will be a last resort.

And there has been another rise in the numbers of homeowners and property investors in arrears, Fitch said.

It said 18.4pc of the value of all mortgages in this market are now three months or more in arrears.

This is up from 16.7pc, the ratings agency said. Most of the increase was due to defaults on buy-to-let loans, it said.

Irish Independent

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