Mortgage repayments may fall by €150 if rates cut


MORTGAGE BORROWERS could see their loan repayments fall by a further €50-€150 in time for Christmas if the European Central Bank (ECB) responds to global pressure to cut interest rates on Thursday. EU and British monetary policymakers are facing mounting pressure to slash interest rates to historic lows.

The ECB's governing council and the Bank of England's monetary policy committee meet this week amid a clamour for rate cuts which are unprecedented in their brief histories.

Surveys suggest that economists expect cuts of at least half a percentage point, which would take the ECB rate down to 3.25 per cent and the Bank of England's rate down to 4 per cent.

Both the Bank of England and the ECB cut rates on October 8th by a half-point as part of a globally co-ordinated move to spark economic activity.

However, dire economic news in recent data releases mean that they will probably be forced to move again.

That rate cut, which brought the ECB base rate down to 3.75 per cent, was the first decrease in euro-zone interest rates in more than five years.

It meant that Irish homeowners with typical-sized variable-rate mortgages saw their monthly repayments fall by €50-€150, as the main lending institutions passed on the rate cut.

Homeowners with a mortgage of €200,000 being repaid over 20 years saw their repayments fall from €1,381 to €1,325, assuming they were charged interest at a typical margin of 1.3 points above the ECB rate.

Some lenders waited until this month to pass the rate cut on, while others gave borrowers the benefit of the rate cut for a portion of October.

A further half-point cut would see repayments on such a mortgage shrink to €1,271, meaning the household would be better off by an extra €100 a month as a result of the two rate cuts. For homeowners repaying a mortgage of €500,000 over 30 years, the fall in their loan repayments would be more than three times that amount.

On Saturday, the Reserve Bank of India took emergency action to cut interest rates and pump liquidity into the country's banking system amid concerns that the global financial crisis would significantly cut India's growth. The measures followed rate cuts by the central banks of Japan and China last week. Meanwhile, French president Nicolas Sarkozy and British prime minister Gordon Brown have struck up an unlikely partnership ahead of next week's summit in Washington aimed at overhauling the global financial system.

But Paris fears Mr Brown is committed to preserving a light-touch regulatory regime for the City of London. French officials say the strongest message that should come out of the Washington meeting on November 15th would be a broad commitment from the US, the UK and other European countries to abandon competition between regulatory systems in favour of convergence. However, they acknowledge this is unlikely.

Mr Brown and Mr Sarkozy want agreement from the leaders of the G20 group of advanced and emerging economies in the US capital for a "new Bretton Woods", a redesign of the post-war global financial architecture. - (Additional reporting, Financial Timesservice.)