Thursday 18 January 2018

Homeowners urged not to save ECB cut


Charlie Weston Personal Finance Editor

PEOPLE who have tracker mortgages were advised yesterday to use the reduction in their monthly costs to overpay their home loans instead of pocketing the gain.

Around 400,000 tracker holders will see their repayments come down by around €15 a month for every €100,000 of their mortgage after the European Central Bank lowered its key rate last Thursday.

But mortgage experts said there would be huge gains for those who maintained payments at the same level, if they could afford it.

This effective overpayment would mean paying less interest over the course of the mortgage.

The advice came as lenders, including EBS and KBC Bank, said they had not yet decided whether to pass on last week's ECB cut.

Around 250,000 people are on variable rates, which are now up to €400 a month more expensive than trackers for the same sized mortgage.

Michael Dowling of the Independent Mortgage Brokers' Federation said people lucky enough to have a tracker should use the third ECB rate cut in eight months to overpay their mortgage, as long as they could afford to do so.


Tracker holders should specifically tell the bank to keep the payments at the same level. Banks will not advise people to do this, as it means they will lose out.

Someone who overpays €50 a month on a 30-year mortgage, on a tracker rate of 3.75pc, would knock almost five years off the mortgage and save €12,000 in interest payments.

If the overpayment per month was doubled to €100, then more than eight years could be knocked off the mortgage term, and interest savings of €20,000 could be made, Mr Dowling calculated.

He said there was likely to be another cut in European interest rates before the end of the summer.

This could mean eurozone interest rates would fall to just 0.5pc, in line with those in the UK and the US.

Meanwhile, EBS refused to say if it would reduce its variable rate. The lender, which has one of the highest variables in the market at 4.33pc, said it was reviewing its rates.

Ulster Bank and Permanent TSB have both lowered their variable charges. Despite the reduction, Ulster Bank still charges the highest rate for its variable mortgages at 4.5pc.

Bank of Ireland and Irish Nationwide -- which is now called Irish Bank Resolution Corporation -- are also considering whether to pass on the latest rate cut.

National Irish Bank, which changes 4.44pc to its variable rate customers, said that its Danish-owed parent Danske Bank does not use the ECB rate to assess its cost of funds. Denmark is not in the eurozone, so it does not react to ECB rate changes.

This is despite the fact that three-quarters of its mortgages in this market are linked to the ECB rate, as they are trackers.

Irish Independent

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