Tuesday 30 August 2016

Tracker mortgage holders are the real winners here

Published 24/06/2014 | 02:30

It's great if you are one of the 375,000 tracker mortgage holders
It's great if you are one of the 375,000 tracker mortgage holders

GET used to it. Eurozone interest rates are low, very low, and are going to stay that way for a good while yet.

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President of the European Central Bank Mario Draghi has attempted to calm fears about a faltering recovery in the 18-country eurozone by committing to two-and-a-half years of official interest rates at the current record low.

A year after the euro area exited its longest recession, the Frankfurt-based ECB is still battling too-low inflation and attempting to reboot demand.

Earlier this month, the ECB cut interest rates to just 0.15pc and launched a series of measures to pump money into the sluggish eurozone economy.

Mr Draghi's unprecedented range of measures this month included a negative deposit rate – basically charging banks for depositing money with the ECB in an attempt to force banks to lend more.

He pledged to do more if required. However, as if to emphasise the sluggish nature of the economic recovery in the currency zone, France said its manufacturing activity fell by more than expected last month. That matters because France is the second largest country in the zone.

And German economic activity may be expanding, but it has failed to meet investor expectations.

The International Monetary Fund is among the organisations worried about the risk of deflation taking hold within the eurozone. That is a situation where prices keep falling, so consumers hold back from buying in the expectation of even lower prices. A vicious cycle then takes hold.

All of this is great if you are one of the 375,000 tracker mortgage holders. You are already paying back your mortgage at an interest rate that is now so low it is costing the bank money to service your mortgage. We are never likely to see such cheap mortgages again.

A succession of cuts has seen trackers saving around €6,000 a year on repayments.

Variable rate holders have not been so lucky. Some 200,000 people who have variable mortgages are not expected to benefit from ongoing low ECB rates.

One lender, Permanent TSB, recently hiked its variable rates, prompting fears others may do the same.

The gap between the monthly repayments for those on a tracker and those on a variable is now more than €300.

And savers are also losing.

Banks have been cutting the interest rates being paid to depositors since April 2012, but in the last couple of weeks there has been an acceleration in the rate reductions.

More reductions in the interest paid on savings are now expected.

Move your money to one of the tax-free state savings schemes unless you want the bank to benefit.

Irish Independent

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