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Wednesday 18 September 2019

Mortgage holders to gain as ECB hints at delaying rates rise

Mario Draghi
Mario Draghi
Charlie Weston

Charlie Weston

The head of the European Central Bank (ECB) has given his broadest hint yet that he may hold off increasing interest rates as planned at the end of next summer.

A move to hold off on a rates rise would be a massive boost to hundreds of thousands of mortgage holders, as well as small businesses.

Households and firms are already facing the threat of a hard Brexit hitting economic growth in this country next year.

ECB President Mario Draghi said the bank could change its plans to start raising interest rates late next year if borrowing costs rise too far or inflation slows.

Mr Draghi said in a speech in Frankfurt he was sticking to plans to stop boosting the eurozone economy by buying bonds, but cautioned the interest-rate path might change.

"If financial or liquidity conditions should tighten unduly or if the inflation outlook should deteriorate, our reaction function is well defined," Mr Draghi told an audience of bankers.

"This should in turn be reflected in an adjustment in the expected path of future interest rates."

The ECB has previously signalled next September as the likely start of rate increases.

Raising rates would be a signal of strength for the economy, but would hit borrowers here in the pocket.

More than 300,000 Irish households with a tracker mortgage are among those who benefit most from the current low rates. A similar number on variable rates also benefit.

However, large numbers of householders are opting to lock in to fixed rates at the moment as they expect eurozone interest to rise next year.

Their mortgage rate can be increased when the official ECB rate goes up, so the longer it is delayed the better for homeowners.

Savers, however, would be the big losers if the ECB delays raising its key interest rates as deposit rates in banks here are near zero.

Also influencing the timing of interest rate rises is the strength of the eurozone economy.

It grew at its slowest pace in more than four years in the three months to the end of September, dragged down by near-stagnation in Italy and a weaker performance in Germany.

The euro area grew 1.7pc from a year earlier, according to the latest official data, far slower than expected.

Last year's growth of 2.7pc had been the fastest expansion in a decade and sparked hopes Europe was set for a sustained upturn.

A slowdown casts doubt over whether the ECB can begin to normalise super-low interest rates before the next downturn.

Mortgage holders in this country are already being hit with the highest lending rates in the eurozone.

Central Bank figures show that home buyers are paying multiples of what is being charged in other countries in the euro area.

A "quasi-monopoly" among banks here was cited as one of the reasons for high rates by Mr Draghi when he spoke in Dublin recently.

The average interest rate issued on a new mortgage in September was 3.08pc. This compares to an average rate of 1.76pc across the eurozone.

"Ireland continued to have the highest average interest rate across the euro area on all new mortgages agreed in September, at 3.08pc," the Central Bank said.

"The rate varied considerably across countries, with the average for the euro area being 1.76pc."

Irish Independent

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