According to economic analysts, the European Central Bank (ECB) is expected to decrease the interest rates to 2 per cent or even lower before the impending summer. The multiple rate cuts would result in the yearly home loan expenses for approximately 200,000 borrowers decreasing by over €2,000. The central bank has made one fourth per cent reduction in its fundamental rate for two consecutive months and a one-off technical cut of 0.35 per cent was introduced in September. This could decrease the monthly repayments on a tracker mortgage of €180,000 by close to €104. It is forecasted that if this cutting trend continues until the following June, the yearly savings for many of the country’s 180,000 tracker holders will exceed €2,500.
Just a few weeks ago, it was largely predicted that the ECB would delay further rate cuts till December, noted Daragh Cassidy of the price comparison and switching website bonkers.ie. However, an unexpected ease in euro zone inflation to 1.8 per cent, a fraction under the ECB’s 2 per cent aim, has allowed for a subsequent cut. Tracker customers would experience the benefits of the cut immediately, while there will be additional downward pressure on variable and new fixed rates. Cassidy warned, though, that savers could potentially face falling rates and decreasing mortgage rates could potentially ignite an already fiery property market which is not what is needed.
Paul Nicholson, Davy’s head of investment strategy, suggested that given the worsening economic growth outlook in Europe, further cuts could be on the way. He stated that the ECB’s shift from inflation control to combating weak growth is expected to continue and by 2025’s summer, interest rates may have fallen to 2 per cent or even lower.
Following the confirmation of the rate cut, ECB president Christine Lagarde released a statement stating that efforts to check inflation were progressing well but data will be the driver of future actions. She discounted the threat of a euro zone-wide recession stating the ECB is pursuing a soft landing approach. However, she cautioned that sluggish confidence could hamper the swift recovery of consumption and investment.
Rachel McGovern from Brokers Ireland highlighted that reductions in ECB rates are having an increasing impact, drawing attention to the relief that this would bring to tracker mortgage holders, following 10 considerable increases that have put a strain on their finances.
She pointed out those with variable rates or about to transition from fixed rates are reliant on each lender’s verdict, while recognising a number have already reduced their rates.
McGovern advocated for Irish financial institutions to provide more competitive long-term fixed interest rates that extend beyond the standard three to five years in Ireland. This would require lenders to think ahead but she emphasised it would render significant advantages, allowing for effective long-term planning for individuals, entire families, and overall societal stability. Strikingly, it would also benefit lenders.
Meanwhile, Trevor Grant, head of Irish Mortgage Advisors, cautioned that the rate reduction would only offer minimal relief to many. He acknowledged that while those with variable and fixed rates may not witness a decrease in their monthly mortgage payments, it would provide reassurance eliminating the fear of constant interest rate hikes, that were a norm between July 2022 and September 2023.