Banks are being urged to reduce the interest they charge on variable-rate mortgages after the European Central Bank cut its main rate to an historic low in an effort to boost the struggling euro zone economy.
The ECB reduced its main lending rate by 0.10 percentage points to 0.15 per cent as its governors moved to charge commercial banks interest for holding money in the ECB in an effort to stimulate bank lending.
Further steps include a scheme to increase the flow of lending to small and medium-sized firms by as much as €400 billion. ECB president Mario Draghi told reporters that the ECB has now reached the “lower bound” of interest rates but he still left open the possibility of further measures to kick-start economic activity.
“The key ECB rates will remain at present levels for an extended period of time in view of the current outlook for inflation,” he said.
Tracker mortgages The holders of almost 400,000 tracker mortgages in Ireland will take the benefit of an automatic reduction in their
repayments as the rates they pay are contractually tied to the ECB rate. Monthly repayments will drop by about €6 for every €100,000 of tracker mortgage debt. Although many Irish banks have not passed on the benefit of ECB reductions to holders of variable rate mortgages, they came under renewed pressure to do so.
“Many variable-rate mortgage holders are in trouble financially and they need the banks to cut their rates as they are no longer tenable in today’s economic climate,” said Ciarán Phelan, chief executive of the Irish Brokers’ Association. “We would call on all banks to pass the full rate-cut on immediately to those on standard variable rate mortgages.”
Duty of care Fianna Fá
il finance spokesman Michael McGrath said there was no justification for banks “gouging” variable-rate customers, adding that Minister for Finance Michael Noonan and the Central Bank of Ireland had a duty of care to protect consumers. “If we were operating in a normal competitive market, customers would be able to move their mortgage to another provider, but the market for mortgage switching is effectively closed,” said Mr McGrath.
However, Mr Noonan’s spokesman said commercial decisions of State-backed banks were for their boards and management to make.
The ECB stopped short of printing money to buy assets, a procedure known as quantitative easing which was carried out by the US Federal Reserve.
