Monday 19 March 2018

Great mortgage divide widens to €80 a week

Charlie Weston Personal Finance Editor

THE gap between repayments for families on tracker mortgages and those on variable-rate home loans has widened dramatically to nearly €80 a week.

The great mortgage divide is now more than €320 a month after the latest cut in interest rates by the European Central Bank (ECB).

And unless banks agree to slash their variable rates the gap could widen because the ECB may cut again.

Yesterday's cut means interest rates are now at an historic low of 0.75pc. However, only those on tracker mortgages are guaranteed the benefit of ECB cuts.

Yesterday's move is good news for those families as someone with a €250,000 tracker mortgage will save €30 a month in repayments.

There are 400,000 tracker mortgage holders who will be relieved by the latest rate reduction, the third since ECB president Mario Draghi took over at the end of last year.

However, the 250,000 who have variable mortgages are at the mercy of their individual banks.

Most lenders are waiting to see how much political heat is generated before saying if they will pass on the 0.25pc ECB cut.

But Ulster Bank, which is putting thousands of customers through a computer payments breakdown, has decided to pass on the cut to its variable rate customers.

The British-owned bank failed to pass on the full reductions last November and December but did cut its rate earlier this year.

Ulster had the highest variable rate in the market at 4.75pc. That will now fall to 4.5pc, but the bank can't say when that will happen because it is still getting to grips with its computer chaos.

AIB said yesterday it was not going to pass on a reduction as its 3pc rate is the lowest variable in the market.

Its chief David Duffy said: "As a pillar bank, AIB has a fundamental role to play in the Irish mortgage market but must do so at a sustainable economic return."

Permanent TSB will again have the highest rate in the market at 4.67pc after Ulster Bank cuts its rate.

However, it is understood a cut of at least 0.25pc will be announced in the coming days.

EBS, Bank of Ireland, Irish Bank Resolution Corporation (formerly Irish Nationwide) and KBC Bank said they were keeping their variable rates under review.

Spokesman for the Independent Mortgage Advisers Federation, Michael Dowling, said intense pressure would now come on Permanent TSB and EBS in particular to reduce their rates, as they have some of the highest mortgage costs.

Fianna Fail's Michael McGrath called on the Government to lean on the state-owed banks to cut their rates.

Tracker holders are already the big winners from yesterday's move. Nearly half the mortgage holders in the market have a tracker mortgage.

Large numbers of them will see their rate fall to 1.75pc.

This will mean repayments on a €250,000 mortgage will drop by €30 a month to €893, according to calculations by mortgage expert Frank Conway.

But the average variable rate is around 4.2pc, according to calculations by this newspaper.


So people on variable rates are repaying €1,211 a month on the same-sized mortgage, an extra €320 a month than the tracker holder.

Over a full year this works out at a premium of €3,840.

Mr Conway said that was a huge payments gap opening up between tracker holders and those unlucky enough to be on a variable rate.

He added lower mortgage rates would help ease the mortgage arrears crisis.

"Banks would be foolhardy not to pass on yesterday's rate cut as doing so will probably slow the growth rate in mortgage arrears.

"Besides, this is precisely why the ECB cuts rates, so that it feeds down directly to consumers and not into the back pockets of individual banks," said Mr Conway.

Economist with Goodbody Stockbrokers, Dermot O'Leary, said there was likely to be another cut in ECB rates later in the year.

"There is scope for another cut in the short term. The ECB has left the door partially open to that over the second half of this year."

The ECB cuts rates to stimulate the flagging eurozone economy.

It also moved to discourage banks from depositing money with the ECB in Frankfurt, by cutting the interest rate for these deposits to zero.

Meanwhile, Ireland made a successful return to the lending markets yesterday, which was welcomed by ECB president Mario Draghi.

The ECB boss said: "Ireland is a member country that through extraordinary efforts has run a programme which is on track so much that Ireland returned to the markets today, if I am not mistaken, much earlier than anyone expected."

Irish Independent

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