Tens of thousands of Irish mortgage holders to see immediate benefit from likely ECB rate cut

Tens of thousands of Irish homeowners will immediately benefit from a likely interest rate cut from the European Central Bank (ECB) on Thursday with the State’s banks also likely to come under pressure to reduce fixed and variable rates before the end of the year.
The ECB’s board of governors meets in Frankfurt on Thursday and is expected to cut its deposit rate, currently at 3.5 per cent, by a further quarter of a percentage point.
It will be the third official rate cut since June and the fourth if a technical rate adjustment which it rolled out in September, in order to cut the gap between its main refinancing operations rate and its deposit rate, is included.
The move will also be the first time in 13 years that the ECB has announced back-to-back cuts, having last done so at the height of the financial crisis in 2011.
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“We believe that the requirement for and trajectory of interest rate cuts has been accelerated over the past weeks,” said Davy head of investment strategy Paul Nicholson. “Inflation has fallen below 2 per cent, well before ECB and market expectations. Furthermore, weakening sentiment and economic activity indicators continue to point to a slowdown in economic growth.”
He said a “shift of focus from controlling the inflationary impulse, to concern surrounding weakening growth will continue”.
Markets are expecting another cut before Christmas with rates likely to level out at about 2.25 per cent by the end of 2025.
A 0.25 per cent rate cut this week will see tracker mortgage holders’ repayments fall by about €13 per month for every €100,000 still owed, with the rate reductions automatically passed on by lenders within 30 days.
A borrower with an outstanding loan of €250,000 over a repayment period of 15 years is likely to see the cost of their mortgage fall by about €33 a month.
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However when all the other rate cuts are factored in, the monthly savings for a tracker mortgage holder with a loan of €250,000 will amount to about €130 a month or in excess of €1,500 over the course of a year.
While the savings will be welcomed by that cohort, they are still paying considerably more than two years ago and even when all the cuts in 2024 come into effect, the cost of their loans will still be some €300 more per month than in 2022.
While there will be no immediate benefit to variable and fixed-rate mortgage holders, the move from the ECB will inevitably put further downward pressure on rates across the board with calls for the State’s main banks to lower all rates likely to get louder in the run-up to Christmas.