ECB makes second quarter-point rate cut to support borrowers

The 0.25 percentage point cut is a boost for borrowers and comes after the ECB raised rates 10 times through September.

This measure means that the bank’s refinancing rate, from which the trackers are valued, falls to 4%.

In June, the ECB cut its refinancing rate, at which variable-rate mortgages are assessed here, by 0.25 percentage points to 4.25%. Later this month, holders of variable-rate mortgages are set to benefit from a special reduction of 0.35 percentage points when the ECB makes a technical adjustment to its interest rates.

However, despite the two rate cuts and the special adjustment to the refinancing rate, many of those holding index bonds will continue to pay hundreds of euros more than before the interest rate hike.

This adjustment of the refinancing rate, to bring it closer to the ECB’s deposit rate, should be implemented next Wednesday, according to independent economist Simon Barry.

There are 180,000 customers with variable rate mortgages, which represents about a quarter of the mortgage market.

Martina Hennessy, managing director of broker Doddl.ie, said: “The vast majority of mortgage holders in Ireland do not have a tracker rate, but are also hoping that the ECB’s rate cut will encourage Irish mortgage lenders to follow suit.

“Before the ECB’s rate cut in June, major Irish banks had already cut rates by as much as 1% in May.”

She said that, typically, variable rates – and deposit rates – should move in tandem with changes in the ECB’s base rate.

“However, fixed rate mortgages are influenced by other factors including the Euro Interbank Offered Rate (EURIBOR), deposits, operating costs and competition. Currently, interest rates in the Irish market vary considerably, ranging from 3.45% to 6.9%,” Ms Hennessy said.

She said we could see some lenders at the top end of the market cutting rates and anchor banks making adjustments to remain competitive. But rates are unlikely to return to the low levels of less than 2% seen just over two years ago.

Today’s reduction in the refinancing rate and the exceptional adjustment of the same refinancing rate will give tracker holders a total reduction of 0.60 points.

This will save around €30 per month in repayments, based on a couple of owners with 15 years remaining to repay and €100,000 remaining to repay.

Homeowners with trackers were hit hardest by the ECB rate hike. A family with €100,000 left to pay over 15 years would have had to pay €2,400 more per year before the ECB cut rates in June.

Every 0.25 percentage point reduction in the ECB’s refinancing rate will reduce monthly repayments for index bondholders by €13, a saving of €156 per year.

The ECB’s cut today will put pressure on banks and other lenders to cut mortgage rates. It comes after new figures showed the average rate for new mortgages across the market remained stable at 4.11% in July.

Non-bank lenders will be under greater pressure to cut rates than other lenders, with Finance Ireland and ICS having some of the highest rates in the market due to different funding models.

Customers of these lenders who switch from fixed rates risk facing variable rates of up to 6%.

Pepper, which manages mortgages bought by vulture funds, has promised to pass on the ECB’s rate cuts. Its rates are now at 10%.