The European Central Bank (ECB) returned to its roadmap of rate cuts with a further 0.25% reduction in its deposit facility rate, providing immediate relief to tracker mortgage customers.
Tracker customers have felt the brunt of a high interest rate environment over the last two years but they are set to gain from the ECB’s latest monetary policy decision in addition to the 0.25% interest rate cut in June and a once off measure scheduled for later this month.
“Tracker customers are going to see a very welcome benefit in September,” said broker and managing director of Dowling Financial Michael Dowling.
On September 18, tracker mortgage customers will see a further one-off fall of 0.35% as the European regulator aligns its various rates which will provide a further reduction in repayments each month.
The average tracker customer with a mortgage of around €250,000 will therefore see a €120 reduction in monthly repayments due to the accumulative 0.85% reduction in rates.
There are 179,000 customers with tracker mortgages who owe approximately €15bn and represent 25% of the mortgage market.
The ECB began hiking rates in July 2022 in an effort to drive down stubborn inflation and announced the first reduction in almost two years in June.
At its meeting in July, the ECB monetarily paused reducing rates due an unexpected rise in inflation.
However, the pace of inflation in the eurozone cooled to 2.2% in August, hovering just above the regulator’s target of 2%, strengthening bets among analysts that it would lower rates once again at its September meeting.
Locally, consumer price inflation eased below 2% for the first time in over three years in August, according to figures from the Central Statistics Office.
ECB president Christine Lagarde remained guarded in relation to further rate cuts, stating the direction of the interest rates “is pretty obvious” and that that rates will decline over time but the regulator is not committing to schedule “predetermined in terms of sequence or of volume”.
Industry brokers, including manging director of MortgageLine Stephen Hamilton maintain that banks will not be quick to pass on rate reductions to fixed and variable rate customers as they were slow to pass on hikes.
“After some mortgage rate decreases in early 2024, Irish mortgage rates have largely held steady this year,” said Mr Hamilton.
Banking customers are set to benefit from new entrants in the mortgage market including Bankinter and Revolut which has already driven a frenzy of activity among the three main banks in the Republic to provide attractive rates.
“It would be our hope that increased competition will also lead to better mortgage products for consumers, particularly genuinely long-term fixed rates which had been relatively new in Ireland and pulled from the marker when the ECB began raising rate from mid-2022,” said Rachel McGovern, deputy chief executive at Brokers Ireland.
In addition, economist and head of real estate research at Deloitte Ireland Kate English said “businesses have accepted that we are in a new environment where interest rates are higher for longer and that we are not returning to rates in the past.”
“What will be significant over the next while is trade policy and the rise of protectionism and looking at how Ireland’s economy sits against the European backdrop,” she added.
Meanwhile, between April and June, Irish households saved 12.7% of their incomes – down slightly from 14.6% during the first three months of the year which the Central Statistics Office (CSO) said was “unusually high”.
The slight decline was recorded before the ECB announced their first interest rate cut and affordability is set to improve as inflation and rates decline.
According to the CSO, income fell slightly in the quarter while consumption rose – up €2bn to €38bn compared to the same period last year – producing the lower saving rate.