The European Central Bank (ECB) looks set to reduce interest rates to 2 per cent or less before the summer, with the cumulative impact of multiple cuts seeing the annual cost of home loans for almost 200,000 borrowers fall by over €2,000, according to financial analysts.
For the second month in succession and the third time since June, the ECB cut its key rate by one quarter of a per cent.
The cuts, and a once-off technical reduction of 0.35 per cent rolled out in September, will see the monthly repayments on a tracker mortgage of €180,000 fall by around €104. If, as is widely anticipated, the cutting pattern continues until next June, the annual savings for many of the State’s 180,000 tracker holders will top €2,500.
“As recently as three or four weeks ago it was widely expected that the ECB wouldn’t cut rates again until December,” said Daragh Cassidy of price comparison and switching site bonkers.ie. “But rapidly easing inflation in the euro zone, which at 1.8 per cent is now just below the ECB’s 2 per cent target, has allowed for a second consecutive reduction.”
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He said tracker customers would benefit immediately from the cut but added that the “move will also put further downward pressure on variable and new fixed rates”.
However, he warned that savers were likely to see rates fall and suggested falling mortgage rates could also “add further fuel to an already over-heating property market, which is really the last thing that we need”.
The head of investment strategy at Davy, Paul Nicholson, said more cuts were coming “given the deteriorating economic growth outlook in Europe”. He suggested that a shift in the ECB’s focus from controlling inflation to weakening growth would continue, and with interest rates “likely to finish around 2 per cent by the summer of 2025″ they could go even lower.
In a statement after the rate cut was confirmed, ECB president Christine Lagarde said moves to combat inflation were “well on track” but she stressed that future moves would be driven by data. She played down the risk of recession across the euro zone and said the ECB was “still looking at that soft landing”, but warned that “lower confidence could prevent consumption and investment from recovering as fast as expected”.
[ How working abroad can make it easier to secure a mortgage back in IrelandOpens in new window ]
Rachel McGovern of Brokers Ireland said ECB rate cuts were “becoming more meaningful” and noted that while tracker mortgage holders would see a benefit, the cuts come after 10 “steep rises [which] have taken their financial toll”.
She said borrowers on variable rates and coming off fixed rates remained dependent on individual lenders’ decisions but noted that several have cut rates already.
She called on Irish banks to offer better long-term fixed interest rates “beyond the three to five years typical in Ireland”. She said it would require “lenders planning long-term” but said it would have “major benefits, it enables good long-term planning – for individuals, for families, for the stability of society at large, and, ironically, for lenders too”.
The chairman of Irish Mortgage Advisors, Trevor Grant, warned the cut would be of “limited benefit to many”. He said while those on variable and fixed rates might not see their monthly mortgage bill fall “they can take comfort that they no longer need to worry about the interest rate rises which had become so commonplace between July 2022 and September 2023”.
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