Saturday 19 January 2019

ECB rates cut will not be passed on to variable mortgages

MORTGAGE holders on variable rates will not receive any benefits after the European Central Bank (ECB) cut lending rates to 0.05pc.

The record low rates will benefit tracker mortgage holders whose loans are set against such lending rates.

It means that annual savings of €120 will be made on a €200,000 tracker mortgage.

However, those on variable rates will lose out on the cut as it is unlikely that their financial institutions will pass on or lower their variable lending rates.


World stock markets and the Irish exchange surged after the European Central Bank, led by Presedent Mario Draghi, cut its interest rates to the bone.

The ECB's lending rate has now come down from a high of 4.25pc in July 2008. At that time, many mortgage holders had their repayments set on fixed rates lower than that of the ECB rate. However, when the agreed fixed rate time period expired, they reverted back to the variable mortgage rate as the ECB started to cut their lending rate to the benefit of tracker mortgage accounts.

Yesterday's unprecedented development will benefit 375,000 tracker mortgage holders and comes just three months after the last reduction.

Homeowners who owe €200,000 on a mortgage will save around €10 a month from the latest reduction, which works out at €120 a year.

This is because banks have to reduce interest charged on trackers every time the ECB cuts its rate.


A rise in ECB rates is unlikely until well into 2016, economists said. Some people on trackers will now end up paying as little as 0.55pc in interest compared with an average variable rate of 4.5pc.

The latest decrease is unlikely to be passed on to variable rate holders.

Karl Deeter of Irish Mortgage Brokers said: "The rate cut will deliver little or no relief for variable rate holders."

However, pressure has begun to build on banks to reduce the variable rates charged to new mortgage borrowers, and the 200,000 existing variable mortgage holders.


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