MORTGAGE HOLDERS will benefit from another fall in their monthly repayments after the European Central Bank (ECB) cut interest rates to a fresh historic low yesterday as part of an unprecedented package of measures designed to bolster the euro zone economy.
The ECB announced a quarter-point cut in its key lending rate, which has now dropped from 4.2 per cent to 1 per cent in a rapid series of rate cuts since October 2008.
ECB president Jean-Claude Trichet yesterday said at a press conference in Frankfurt that the central bank’s governing council had not ruled out further rate cuts.
The rate cut means that the monthly repayments on a typical €300,000 tracker mortgage over 30 years will fall by €39 to €1,154. The rate reduction is passed on automatically for all tracker mortgage holders.
Permanent TSB, AIB, EBS Building Society, KBC Bank, Bank of Ireland and its subsidiary ICS, and Irish Nationwide said they would pass on the rate cut in full to owner-occupiers with a variable rate mortgage. National Irish Bank said it was reviewing the situation.
However, Ulster Bank, First Active, Halifax and Bank of Scotland (Ireland) said they would not pass on the reduction to variable rate mortgage holders. Ulster Bank and First Active, which are owned by Royal Bank of Scotland, said its decision was “being taken in consideration of the needs of savers as well as borrowers”.
Ulster Bank and First Active also did not pass on the previous half-point rate cut announced by the ECB.
The decision was sharply criticised by Fine Gael enterprise, trade and employment spokesman Leo Varadkar, who said it was a “blatantly unfair” move. “Ulster Bank is ripping off its customers by holding on to this money which should be handed back to homeowners,” he said.
“This is reprehensible behaviour from an institution that is taking advantage of hard-pressed Irish mortgage holders.”
Mr Trichet’s comments that a rate of 1 per cent did not necessarily mark the end of the rate-cutting cycle marked a departure from earlier statements by governing council members, who have expressed reluctance to take interest rates below 1 per cent for practical and psychological reasons.
However, after the euro-zone recession proved sharper than expected in the first four months of 2009, the ECB has had to adopt a more aggressive strategy in its bid to unfreeze credit markets and kick-start the moribund economy.
Mr Trichet yesterday said the ECB would buy about €60 billion worth of covered bank bonds in order to stem the euro zone’s economic decline and boost confidence.
The move, which is similar but not as extensive as asset-purchasing measures in operation in the UK and the US, is the first of its kind for the ECB.
In the final part of a three-pronged package of steps, the ECB also announced that it was doubling the maximum term of its loans to banks to 12 months in a bid to give them greater certainty about their funding over the next year.
It is hoped that this move will mean that European banks are more willing to lend to consumers and businesses.
Speaking from the summit of EU leaders in Prague, the Taoiseach welcomed the launch of the ECB’s credit easing initiative.
“We obviously have to wait to see the details, but they are indicating that they will look innovatively at ways and means at which they can assist more liquidity and more access to credit in the market and that would be helpful in our situation as others,” Mr Cowen said.
The interest rate cut was “a help”, he added. “Everything that is positive should be welcomed.”