Christmas mortgage boost with ECB rate cut
HOMEOWNERS with tracker mortgages could be in line for a Christmas boost after investors placed heavy bets on a new cut in eurozone rates.
The euro currency fell in international trading after investors decided that the European Central Bank (ECB) is likely to signal a reduction in its key interest rate when it meets tomorrow.
The euro currency fell to a near four-week low against the yen and a one-month low against sterling.
ECB policymakers are expected to react to falling inflation and forecast that the eurozone economy will expand slightly more slowly next year than previously expected.
A cut in interest rates could come this week, or at December's meeting of the ECB. Another drop in ECB rates would see a family on a €250,000 mortgage paying €30 a month less in repayments. Over a year, this would amount to a saving of €360 – roughly the cost of the property tax on an average home.
Around 375,000 people have tracker mortgages – with the contracts stating that the interest they pay must change when the ECB rate moves.
Economist with KBC Bank Austin Hughes said the markets were convinced that the rates would change this week or at next month's meeting of the governing council of the ECB.
"There is huge pressure mounting on ECB President Mario Draghi to do something, with the markets now convinced that rates will be cut," Mr Hughes said.
The reason for expectations of a cut are that eurozone inflation was just 0.7pc in October, close to a four-year low and far below the ECB's target of close to 2pc.
Policymakers in the eurozone are also concerned about higher unemployment, particularly among young people.
Belgium's governor, Luc Coene, who is a member of the ECB governing council, said he would loosen policy further sooner rather than later.
But eurozone interest rates are already at a record low of 0.5pc and not all of his colleagues on the council will argue in favour of another cut when the 23 policymakers gather in Frankfurt tomorrow to set the bloc's monetary policy.
Austria's central bank governor, Ewald Nowotny, noted last week, before the inflation data came out, that the recovery was "getting stronger" and that a cut would have little impact. Some recent economic data backs his assessment.
Goodbody economist Dermot O'Leary said he expected the central bankers to discuss a cut but he does not expect any changes in rates this year.
This means that close to 375,000 mortgage holders with trackers will not have to worry about higher mortgage costs for a while, as the rate they pay is linked directly to the ECB interest rate.
A homeowner with a €250,000 tracker is now saving around €400 a year in repayments following two cuts in the ECB rate in the last year and a half. Rates have come down from a high of 4.25pc to 0.5pc now. This is the equivalent of 15 cuts of 0.25pc.
This has led to overall savings of close to €6,000 since the downturn for tracker holders, calculations by Karl Deeter of Irish Mortgage Brokers indicate.