Wednesday 19 June 2019

Pressure on banks to cut mortgage rates as ECB kicks hike into long grass

Mario Draghi
Mario Draghi
Charlie Weston

Charlie Weston

Banks have been urged to reduce all their mortgage rates after the European Central Bank (ECB) said it now expects to keep rates on hold at record lows until the middle of next year.

The move to further hold off on a rates rise is 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 this year.

The ECB said it now expects to keep interest rates on hold "at least through the first half of 2020".

It is highly unusual for the ECB to be so specific about its rate-raising plans.

It had previously been expected that rates would start to rise from this September. Now it could be two years before they go up.

Mortgage expert Karl Deeter said money markets were now predicting that wholesale rates would not rise for 12 years.

This means those with trackers would not see higher costs for years.

"All banks should now reduce all their mortgage rates as wholesale rates are set to stay at record lows for a long while," he said.

The ECB also said it would continue paying banks to lend to households and businesses as the outlook for global growth darkens further.

In a statement, the ECB said: "The Governing Council now expects the key ECB interest rates to remain at their present levels at least through the first half of 2020, and in any case for as long as necessary."

The move is set to boost the 300,000 people who have tracker mortgages that can change only when the ECB rates move.

It will also mean banks will be reluctant to push up variable rates, while those locked into fixed rates who are due to come to the end of the term will not now have to pay hugely elevated rates on exit.

There has been a huge upsurge in mortgage holders opting for fixed rates over fears of imminent ECB rate rises.

People are also opting to fix because mortgage holders here continue to pay the highest variable rates in the eurozone.

The average interest rate on all new mortgages agreed in Ireland stood at 3pc in March, down 21 basis points on the same month last year, but still considerably higher than the eurozone average of 1.74pc.

Only Greece had higher interest rates in March.

Banks have been enticing homeowners to fix by offering fixed rates that are lower than typical variable rates. Some fixed rates are as low as 2.3pc compared with variable rates of up to 4.5pc.

In April, AIB, the largest mortgage lender in the State, shocked the market with cuts to its fixed rates.

Bank of Ireland had pushed up some of its fixed rates at the start of the year, a decision it may now reverse.

Irish Independent

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