Your Money

What does the ECB rate cut mean for borrowers and savers?

Q&A: It is very good news for those on tracker mortgages

What does the ECB rate cut mean for you?
What does the ECB rate cut mean for you?
Conor Pope's picture
Conor Pope
Thu Jan 30 2025 - 15:36

The European Central Bank has cut its rate again, has it?

It has indeed and that will be very good news for around 130,000 people who have tracker mortgages and moderately good news for people who will be looking for fixed rate and variable rate mortgages in the months ahead.

How good is the news for tracker holders?

Well, according to financial adviser Michael Dowling, the 0.25 per cent cut announced by the ECB equates to a €13 per month saving for every €100,000 owed on a tracker mortgage.

To save you doing the maths, a person with an outstanding home loan of €250,000 is likely to be better off by around €33 per month from the end of February.

But that is not the only rate cut of late is it?

Not by a long shot. The ECB began cutting rates in June as inflation across the euro zone eased. The June cut was 0.25 per cent with a similar rate cut rolled out in September alongside what the ECB called a technical adjustment which amounted to a 0.35 per cent cut. Then in October and December rates were cut by 0.25 per cent.

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What does all that mean?

It means that the ECB’s lending rate is now 2.9 per cent compared with 4.5 per cent this time last year.

Can you break it down in cold hard cash terms?

Broadly speaking a 0.25 per cent cut sees monthly repayments fall by €13 for every €100,000. Someone who owes €300,000 – a figure that is admittedly on the high end of the tracker scale – will be paying a fairly hefty €265 a month less from the end of February than they were 12 months ago. Spread over the cost a year, the saving come in at more than €3,000.

That is great. But what about the rest of us?

Well, that is an interesting question. According to Daragh Cassidy of bonkers.ie, thousands of so-called mortgage prisoners whose loans were sold to vulture funds who are “paying extortionate variable rates as high as 7 per cent right now” should see their rates fall in the short term.

He says that variable rates from the nonbank lenders ICS Mortgages and Finance Ireland should also reduce “though they’ll still remain much higher than the main banks' variable rates”.

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And what about fixed rates and the variable rates offered by the mainstream lenders?

Martina Hennessy of online brokers doddl.ie notes that mortgage rates in Ireland have fallen since last May by over 1.5 per cent “as banks have already priced in forward rate expectations in recent months”.

She says the “rate curve is at or near the bottom of what is expected. This means competitive pressures, rather than funding costs, are more likely to drive further reductions. We may still see lenders tweak individual rates to remain competitive in certain segments.”

So, good news all round then?

Nope. The ECB cut will not be welcome by Irish savers and is likely to see the deposit rates on the table stall or fall as the year progresses. “Already since the start of the year AIB, Bank of Ireland, Bunq and N26 have cut their savings and deposit rates,” notes Mr Cassidy.

And will that be that for rate cuts?

Not by a long shot. The ECB is likely to cut rates three or four more times over the course of 2025, with much of the smart money betting on the main lending rate inching below 1 per cent by the end of the year – although it is worth noting that this all depends on the world continuing on a predictable path and should we see more geopolitical upheaval, rates could fall faster or rise faster than the smart money is predicting right now.