Mortgage repayments to fall by €50 to €150 a month

HOUSEHOLD IMPACT:MORTGAGE BORROWERS will see their loan repayments drop by between €50 and €150 a month following yesterday's move by central banks to cut interest rates by half a percentage point.

A further interest rate cut may be made before the end of the year, economists predicted yesterday.

Borrowers who hold tracker mortgages will see their repayments fall automatically in line with the European Central Bank (ECB) rate cut of half a percentage point, which becomes effective from next Wednesday.

However, people who hold standard variable-rate mortgages and personal loans will have to wait to see if their lender passes on the rate cut to customers or pockets the benefit by increasing the margins on their loans.

AIB and Bank of Scotland (Ireland) became the first two banks to confirm they will pass on the interest rate cut in full to all variable-rate customers yesterday.

Several other financial institutions, including the three biggest mortgage lenders, Permanent TSB, the Ulster Bank group and Bank of Ireland, said they were reviewing the interest rates on their variable-rate mortgages.

Customers on fixed-rate mortgages will not benefit from the rate cut during the term of the fix.

The ECB cut interest rates yesterday as part of a co-ordinated move with the US Federal Reserve and the Bank of England to help ease the turmoil in the banking sector and to spur economic growth.

This is the first cut in the key euro-zone rate since June 2003. At that time, Irish lenders came under political pressure from former taoiseach Bertie Ahern to pass on the rate cuts in full and in a speedy manner to customers.

Construction Industry Federation (CIF) director general Tom Parlon yesterday called on the banks to pass on the full benefit of the savings immediately. "This decision is a positive signal to those who wish to buy a home of their own," he said.

Interest rate movements are usually passed on to tracker mortgage customers within five working days of the date at which the ECB rate change becomes effective. The exact value of the rate cut will depend on the interest rate charged, the size of the loan and the term of the repayments.

Tracker mortgages first became popular in 2004. Borrowers liked the idea of a "price promise" that the interest rate would move up and down in line with the ECB rate, rather than on the whim of the lender.

These loans also boasted the lowest interest rates available to new borrowers.

But since 2007, many lenders have increased the margins on trackers for new borrowers, who have been encouraged to take up standard variable rates instead.

Standard variable rates are more flexible for lenders as they allow them to increase their margins whenever they want to make more money from their mortgage business.

Bank of Ireland is to withdraw its tracker mortgages from Friday.

Bank of Scotland (Ireland), which includes its retail banking arm, Halifax, was the first bank to announce yesterday that it would also apply the rate cut to standard variable-rate mortgages.

This cut will become effective from November 1st.

AIB said it would pass on the rate cut to all personal, business and mortgage customers, but did not confirm the date from which the lower interest rate will apply.

A spokesman for IIB Bank said the rate cut would be good for consumers and should be good for the money markets.