Thursday saw very welcome news for tracker mortgage holders who after ten consecutive rate increases have now seen the first rate cut by the ECB.
This 0.25% rate cut will positively impact approx. 180,000 tracker mortgage holders in Ireland who will see their mortgage repayments decrease accordingly.
Today’s reduction will result in decreased repayments of just under €400 per annum for a tracker mortgage holder with an outstanding balance of €250,000 over a 15 year term.
While any reduction is a positive, even with todays reduction this same mortgage holder will continue to have monthly repayments at just under €550 per month higher than their pre 2022 repayment.
How much more can we expect ECB rates to fall and when?
If you are a tracker mortgage holder you want to know where to next and how much could rates potentially decrease by?
The ECB are always going to be tentative and err on the side of caution when reducing rates. Rates are unlikely to drop at the same pace as we saw them rise through 2022 and 2023.
The problem for the ECB is that the steady fall in inflation has been interrupted with latest data published showing that inflation increased again in May to 2.6% (from 2.4% a month earlier).
This has led many market analysts to believe that this stubbornly high inflation, driven by rapid wage growth in the Eurozone could limit the number of rate cuts this year.
The ECB Monetary Policy Committee meet every 6 weeks but July is probably too early to hope for another decrease. The ECB will reduce rates by 0.35% in September as they have committed to making a technical adjustment to bring their deposit and lending rates to a more aligned position. It is also hoped that rates will fall in December. This would mean three rate decreases including Thursdays.
One thing that’s widely acknowledged is that tracker mortgage holders are not going to see their rates drop to the position that stood pre 2022 anytime soon. During 2016 – 2022 the ECB marginal lending rate was 0%, it now stands at 4.5% and it would take extraordinary economic circumstances for rates to drop to the 0% level again. A more realistic level is c. 2.5% in the medium term and then a tracker mortgage holder will always have a margin above the ECB lending rate with the average margin in Ireland 1.15%.
The ECB will increased rates to curb inflation and so inflation is the thing to watch, here’s hoping it remains under control with sight of the ECB’s target of 2% the goal.
Any advice you need re mortgage rates please do contact our team of 40 advisors at doddl. We are here to help.
Want to read more – here is an article that we contributed – The Irish Independent – What the ECB interest rate cut means for mortgage holders and savers. Read More -> Here
