Friday 19 January 2018

Tracker-holders in line for further rate drop


Charlie Weston Personal Finance Editor

THOUSANDS of homeowners with tracker mortgages could be in line for an autumn boost.

The head of the European Central Bank, Mario Draghi, signalled that rates would stay at their present low levels for an extended period, and might even go lower.

In a departure from its previous policy of not indicating what it plans to do, Mr Draghi said the governing council of the ECB had discussed a cut.

And he surprised markets with his indication that a new rate cut was being considered.

Rates already fell to a record low of 0.5pc in May, in a move that has saved a typical tracker holder up to €360 a year.

"The governing council expects the key ECB rates to remain at present or lower levels for an extended period," Mr Draghi told a news conference.

Tracker interest rates have to fall when the ECB rate drops. Most tracker-holders are paying between 1pc and 1.5pc above the ECB rate.

However, the indications yesterday were that variable rates would continue to rise, no matter what the ECB does.

More than 300,000 people are on some form of variable rate.

Rachel Doyle, of broker body PIBA, said the eurozone interest rate was becoming increasingly irrelevant for many borrowers.

"The gap between those on tracker rates and those on variable rates has been widening, and we would anticipate that it will grow further, given that the sole priority of the banks seems to be getting back to profitability, regardless."

She said some tracker rate-holders were paying only 1pc on their mortgage, compared with 4.5pc for those on variables.

This meant a gap in monthly payments of more than €300 for a €200,000 mortgage.

"It would appear there is no policy to rein in the banks," said Ms Doyle. "Depending on one's circumstances, it may be prudent at this point for those on variables to consider fixed rates before they, too, head skywards."

Ms Doyle said the extraordinary financial circumstances and the taxpayer-funded bailout of the banks should lead to some measure of Central Bank or government control over rate increases.

"They should ensure that banks move back to profitability at a slower pace, not one that needlessly pushes mortgage-holders and other borrowers over the edge," she said.

Another cut in ECB rates would see the repayments on a €200,000 tracker mortgage falling by another €30 a month.

Goodbody Stockbrokers economist Juliet Tennent said eurozone interest rates were likely to remain at their current levels for a long time.

And if there is to be a new cut, it could come in the autumn.

Mr Draghi may announce a new cut as he is under pressure to stimulate the eurozone economy – latest data shows EU joblessness at a record high.

Irish Independent

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