Tens of thousands of Irish mortgage holders are likely to see another dramatic fall in their repayments over the next 12 months, with a “dovish” European Central Bank (ECB) on course to cut rates to 1.75 per cent next year, analysts have predicted.
At its last meeting of 2024, the ECB confirmed it was cutting rates by 0.25 per cent, the fourth such cut since last June and a fifth if a 0.35 per cent “technical adjustment” announced in September is included.
For a typical tracker mortgage holder, an ECB rate cut of 0.25 per cent sees their monthly repayments fall by €13 for every €100,000 owed. That is just under €40 a month for those with a €300,000 loan.
Rates have fallen by 1.35 per cent since the summer, which translates into a monthly repayment reduction of €74 for every €100,000 owed over a 20-year term or €222 for someone with a €300,000 mortgage, about €2,700 a year.
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If rates are cut at the same level next year, they will be at 1.75 per cent by the end of 2025 and at that level some tracker holders would be paying in excess of €5,000 less than they were at the height of the interest rate cycle.
“The overall tone [of the meeting] was dovish,” said Stephen Grissing, investment strategist at Davy. “Few reasons exist that would cause the governing council to pause its rate-cutting cycle at this point.”
While the ECB moves will put pressure on Irish banks to cut fixed and variable rates, centralised rate cuts or increases do not always transfer directly on to the Irish market.
“It’s important to understand that while ECB rate cuts will influence the market, they don’t always translate directly into lower mortgage rates,” said Martina Hennessy, chief executive of Doddl.ie.
“Over 2022 and 2023, as the ECB raised rates by 4.5 per cent, Irish banks only increased rates by about 1.5 per cent. Those expecting rates to continue to fall in line with ECB cuts may not see this come to pass.”
She said recent rate cuts by banks “already reflect expectations of further ECB reductions. Still, there is significant variability in rates across the market, with the lowest starting at 3 per cent and the highest reaching 6.4 per cent.”
Daragh Cassidy of bonkers.ie noted that the move would benefit thousands of “so-called mortgage prisoners whose loans were sold to vulture funds and some of whom are still paying extortionate variable rates as high as 7 per cent or more right now”.
The news will not be welcomed by those with money on deposit, with the rates offered to savers also likely to stagnate or even fall in the months ahead as a result of the shift in ECB policy.
Mr Cassidy cautioned that savers are likely to start seeing their rates fall. “Irish households currently have almost €160 billion resting on deposit. But the majority of the money is still in accounts that pay little to no interest. So I’d really encourage people with savings to lock into the higher rates while they’re still available.
“And if the ECB continues to slash borrowing costs into next year, as is widely expected, there are concerns how appropriate this will be for the Irish economy.
“The Irish economy is performing much better than the rest of the euro zone and arguably doesn’t need lower interest rates. At least not right now. So this could lead to an uptick in inflation,” said Mr Cassidy.
“Cheaper borrowing costs are also likely to add further fuel to an already overheating property market, which is really the last thing that we need.”
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