Tens of thousands of tracker mortgage holders will see the annual cost of their home loans fall by over €2,000 when the five rate cuts announced by the European Central Bank (ECB) since June are totted up.
The ECB’s widely anticipated move to cut interest rates by a further quarter of a point at its last meeting of the year will see tracker mortgage holders benefit almost immediately. It will put pressure on banks to lower their fixed and standard variable rates, although analysts have warned that cohort not to expect widespread and dramatic cuts in the short term.
The news will not be welcomed by those with money on deposit, with the rates offered to savers also likely to stagnate or even fall in the months ahead as a result of the shift in ECB policy.
It started the downward rate spiral in June in response to an easing of inflation across the euro zone when it cut rates by a quarter of a point. A second rate cut followed in September at the same time as a technical adjustment which amounted a 0.35 per cent cut was confirmed. A further rate cut of 0.25 per cent cut was announced in October.
Interest rates will be 1.35 percentage points lower at the end of the year then they were at the start, and the markets are predicting the same again for 2025, with many suggesting there will be at least four more cuts over the next 12 months, with the main ECB deposit rate falling to 2 per cent or even lower.
The cumulative monthly savings for tracker holders of the five rate cuts announced so far is more than €70 for every €100,000 owed.
“For the average tracker mortgage holder with a margin of 1.1 per cent over the ECB rate the rate drop of 1.35 per cent in 2024 translates to a monthly repayment reduction of €74 for every €100,000 owed over a 20-year term,” said Martina Hennessy, CEO of Doddl.ie.
“For a €250,000 mortgage this adds up to a significant annual saving of €2,230, or nearly €186 per month.”
While the ECB moves have put pressure on Irish banks to reduce fixed and variable rates, Ms Hennessy cautioned those without tracker mortgages not to expect significant rate cuts in the months ahead. “It’s important to understand that while ECB rate cuts will influence the market, they don’t always translate directly into lower mortgage rates.”
She noted that over 2022 and 2023 the ECB raised rates by 4.5 percentage points while Irish banks only increased rates by about 1.5 percentage points. “Those expecting rates to continue to fall in line with ECB cuts may not see this come to pass.”
She said that recent rate cuts by banks “already reflect expectations of further ECB reductions”.
“Still, there is significant variability in rates across the market, with the lowest starting at 3 per cent and the highest reaching 6.4 per cent,” she said.
Daragh Cassidy of bonkers.ie noted that the move would benefit thousands of “so-called mortgage prisoners whose loans were sold to vulture funds and some of whom are still paying extortionate variable rates as high as 7 per cent or more right now”.
However, he cautioned that savers are likely to start seeing their rates fall. “Irish households currently have almost €160 billion resting on deposit. But the majority of the money is still in accounts that pay little to no interest. So I’d really encourage people with savings to lock into the higher rates while they’re still available.
“And if the ECB continues to slash borrowing costs into next year, as is widely expected, there are concerns how appropriate this will be for the Irish economy.
“The Irish economy is performing much better than the rest of the euro zone and arguably doesn’t need lower interest rates. At least not right now. So this could lead to an uptick in inflation,” said Mr Cassidy. “Cheaper borrowing costs are also likely to add further fuel to an already overheating property market, which is really the last thing that we need.”
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