Is it correct to claim that there is positive news for those owning homes in Ireland?
Some Irish homeowners indeed have reason to be pleased, since it has been confirmed by the European Central Bank (ECB) that its primary interest rate will reduce by one-fourth of a percentile, going down from 3.5% to 3.25%.
This news comes after a busy period for the ECB board, doesn’t it?
Indeed, it’s been a dynamic period. This is the third official rate reduction since June and adding a technical rate adjustment they implemented in September in an attempt to minimise the disparity between their primary refinancing operations rate and their deposit rate, it would be the fourth. This is the first instance in 13 years that the ECB has declared two successive cuts, the last time being amidst the peak of the 2011 financial crisis.
What is driving this wave of cuts?
While it’s pretty complex, in simple terms, the ECB now feels confident that euro zone inflation has been brought under check following almost two years of spiralling increases. Presently, inflation across the euro zone is confirming the ECB’s desired target of about 2%. Additionally, the bank has concerns about the slow pace of the bloc’s economic growth and is eager to stimulate it.
Are these cuts beneficial for everyone?
Not exactly, savers might not be too thrilled. Ireland has a significant number of savers, with approximately €150 billion deposited, and the recent cuts could cause the interest rates on deposits either to remain stagnant or even to decline. Nonetheless, it is an immediate boon for approximately 180,000 people holding tracker mortgages who will see an advantage by the month-end.
How beneficial will it be?
A cut of 0.25 percentile will decrease the average tracker mortgage holder’s repayments by €13 for each €100,000 they owe. A person who has taken a loan of €250,000 will save nearly €33 each month, which is just short of €400 annually.
So, these benefits will be additional to the ones from earlier cuts, isn’t that correct?
Indeed, tracker mortgage holders would have experienced a decrease in their interest rates by 1.1 per cent between June to end of this month, following the quarter point cut in June and September and a further adjustment of a drop of 0.35 of a percentage point. As a result, this means that they would be saving approximately £140 monthly on a mortgage balance of £250,000 – approximately a total of £1,700 saved annually.
Such changes would undoubtedly be welcomed by many. That being said, context is essential. Despite ten rate hikes and four reductions, tracker mortgage holders are still faced with higher expenses compared to what they would have paid in early 2022, with their monthly repayments being roughly about £350 more than what it used to be.
As for the possibility of further cuts? It seems highly likely, although confirmation is premature at this point. Changes can happen swiftly and potentially upset elaborate plans by bankers in Frankfurt. Yet, it’s speculated that another rate reduction might occur in December, with potentially three to four additional cuts planned throughout 2025.
What about those who don’t hold tracker mortgages? These rate cuts will likely impact all borrowers at some point. With anticipation of the first rate cut by the ECB in June, leading banks in Ireland had already lowered rates by nearly 1 per cent, priced in advance. With the ECB making more rapid rate cuts than initially projected, it exerts pressure on lenders to also reduce their rates, which would be favourable for individuals with standard variable rate mortgages and those with fixed rates once the fixed rate period concludes. ICS Mortgages promptly announced that they will reduce their variable rates by a quarter point starting 1st December following the announcement. Consequently, loans may become more affordable for first-time buyers, though the benefits may not be seen immediately.