Wednesday 24 July 2019

Mortgage cuts for all are now on the horizon

Ulster Bank ‘prompts price war’

Good news: Philip O’Sullivan says money markets are pricing in a 50:50 chance of a cut in the ECB’s main lending rate.
Good news: Philip O’Sullivan says money markets are pricing in a 50:50 chance of a cut in the ECB’s main lending rate.
Charlie Weston

Charlie Weston

The prospect of across-the-board cuts in mortgage rates has been raised.

It comes after Ulster Bank stunned the market with the first cut in its variable rate in more than a year, saving a typical first-time buyer around €50 a month.

Tracker and fixed rates could also be about to fall.

Expectations are now that the European Central Bank (ECB) will cut its key rates, allowing banks to reprice their mortgage books.

This is in reaction to anaemic growth in the eurozone and inflation falling.

The European Commission again lowered its forecasts for growth yesterday, which puts more pressure on the ECB to cut the interest rates it charges banks.

Ulster Bank is now dropping one of its key variable rates by 0.4pc to 3.9pc for those whose loan is less than 90pc of the property's value.

A first-time buyer borrowing €225,000 will now save over €50 a month.

Although the Ulster Bank rate will still be considered very high, it is the first time in more than a year that a bank has cut variable rates.

Experts said this is likely to force other banks to cut variable rates, prompting a renewed mortgage price war.

Up to now banks have competed on fixed rates, which are now also likely to come down.

Economist with specialist bank Investec Philip O'Sullivan said money markets were now pricing in a 50-50 chance of a cut in the ECB's main lending rate.

Known as the refinancing rate, it is currently 0pc.

Mr O'Sullivan said the "refi-rate" could be cut to minus 0.1pc. This would mean someone with a tracker rate set at 1pc over the ECB rate would then be charged 0.9pc.

That would mean savings of close to €170 a year for the tracker customers owing €300,000.

A reduction in the ECB's refinancing rate would directly affect tracker rates. It would not directly affect variable rates, but would likely influence them, he said.

"If variable rates are coming down there could be a chance of fixed rates being reduced also. That means it could be good news all round for borrowers, but less so for savers," Mr O'Sullivan said.

Founder of the Askaboutmoney.com website Brendan Burgess called on all banks to cut their variable and fixed rates. The Central Bank has repeatedly found that variable rates here are the second highest in the eurozone.

Mr Burgess said mortgage rates were about 1pc higher than they should be in this country.

"It does look as if the ECB will cut its rates. This means we should no longer be paying some of the highest rates in the eurozone. Rates are about 1pc too high. There is no justification for charging such high rates," he said.

Daragh Cassidy, of price comparison site Bonkers.ie, said that up to now banks had focused on reducing fixed rates, which now accounted for 70pc of all new mortgages.

"So this cut is somewhat surprising. This variable rate reduction is the first since KCB reduced some of its variable rates in early 2018," he said.

He added the Ulster Bank move and potential ECB cut suggested there may be room for further cuts.

Irish Independent

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