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Cut in ECB rate good for trackers but bad for savers

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President of the European Central Bank Mario Draghi

President of the European Central Bank Mario Draghi

President of the European Central Bank Mario Draghi

THE ECB rate cut is a "double-edged sword" that will help tracker mortgage holders but is bad news for savers, experts have warned.

Tens of thousands of homeowners with a tracker rate will see their repayments fall.

But consumers with savings will be discouraged by the latest move by the European Central Bank.

And the cut is likely to have a negative impact on the standard variable rates.

The 0.25pc cut announced by ECB president Mario Draghi will reduce monthly repayments by €15 on every €100,000 of a mortgage or debt.

It is estimated that 375,000 homeowners in the state are on tracker mortgages.

However, the 300,000 householders on variable rates are likely to to be hit as banks use these customers to pay for loss-making tracker ones.

Joe Doyle, from Tenantreference.ie, said homeowners on standard variable rates are "stretched to the max".

"It is a significant saving for those on tracker mortgages, but it is a double-edged sword," he told the Herald.

"Some people will benefit, whereas others will take the brunt of the pain.

"The standard variable rate is 4.5-5pc, so banks are making 10 times on the margin."

The cut was unveiled as April brought plunging inflation, weak economic confidence and all-time high unemployment across the continent.

Head of trading at Clear Currency, Peter O'Flanagan, said the ECB was forced to introduce the historically low rate of 0.5pc as there was no sign of improvement in the European economy. The effectiveness of the ECB's move remains questionable, he said.

"I think they are caught between a rock and a hard place. They are quite heavily restricted by their mandate and their armoury is getting thin," said Mr O'Flanagan.

clairemurphy@herald.ie


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