The European Central Bank (ECB) has made an announcement of a 0.25 percentage-point deduction in interest rates which will take immediate effect for tracker mortgage holders. These holders are also set to gain from a 0.35 percentage-point reduction as a result of an effort by the ECB to lower the disparity between its primary refinancing operations rate and its deposit rate. However, industry experts state that borrowers who are on variable rates or those seeking a new mortgage or exiting fixed rates might not experience these benefits for a while.
With these rate reductions, which are anticipated to be implemented by lenders within a month, tracker mortgage holders can expect their repayments to decrease. Specifically, for each €100,000 still owed, the repayment will reduce by approximately €13 monthly. Consequently, if a borrower has an outstanding debt of €250,000 to be paid over a 15 year period, their monthly mortgage cost is predicted to decrease by around €33.
The second, larger rate reduction will result in further savings for those with tracker mortgages. Following a review of the operational framework conducted by the ECB in March, there will be a decrease in the spread between the bank’s refinancing and deposit rates from 0.5 per cent to 0.15 per cent. This implies a decrease in the refinancing rate – the basis for tracker mortgages – by 0.35 per cent within the month.
When both the potential 0.25 per cent reduction and the 0.35 per cent rate reduction are considered, the total saving for every €100,000 of debt owed on a 15-year tracker mortgage is accounted for as €31. This signifies that a homeowner with a mortgage debt of €250,000 would save up to €77 a month or €924 annually.
However, even though these savings are likely to be warmly received by individuals with tracker mortgages, these group of people are still paying significantly higher amounts compared to what was being paid a little over two years back. Despite the prospective reductions this month in addition to a 0.25 per cent deduction made last June, monthly mortgage payments are set to remain around €400 higher than they were in 2022.
Daragh Cassidy from the comparison website bonkers.ie has asserted that the recent rate cut by the ECB is projected to have implications on future reductions, expected at least once more before the year concludes due to easing inflation. He pointed out that this decision could place additional downward influence on variable and fixed rates, with likely reductions from the principal banks in the subsequent weeks, although it may not be immediate.
Financial expert, Mark Coan from moneysherpa.ie believes that the fast-paced rate hikes witnessed in the last two years could be juxtaposed with considerably slower future declines unlikely to revert to the zero per cent rates seen prior to 2022. The market anticipates a further 0.25 per cent reduction before Christmas, with a potential stabilisation to approximately 2.5 per cent by 2025’s end.
He added that such a scenario signals a drop in mortgage rates for present holders and prospective buyers, but possibly not as significantly as people have been anticipating. Fixed rates in 2024 are expected to remain relatively unchanged for home buyers as lenders have already accounted for this rate cut and an expected one in December. Projected rates for 2026 could potentially drop from the current 4 per cent to nearer 3 per cent if ECB reduces to 2.5 per cent. However, the surge in property prices might still result in losses for those waiting for further reductions.
He also expressed that for variable rate customers and those transitioning from fixed to variable rates, relief might not be imminent as the initial rise in rates was minimal. This could intensify the appeal of switching as fixed rates depreciate throughout 2025.
Meanwhile, Cassidy pinpointed that falling interest rates can also disadvantage some individuals. The possibility of reduced rates for savers is increasing, as are declinations in annuity rates potentially making retirement funding difficult in some instances. He highlighted that N26, a German internet-only banking institution, has considerably reduced its savings rates to 1.1 percentage points, with a likelihood of further cuts from other suppliers by the year-end. However, intense competition between Irish and overseas banks to attract savers’ money could keep rates slightly higher than anticipated.
He stated that the amount of money deposited by Irish families exceeds €150 billion and that the majority of this wealth is in accounts with minimal or non-existent interest. Thus, he strongly urges those with savings to secure the higher rates available for now.