Many mortgage holders will have received notification recently that their repayments are set to come down over the next week or two.
The payment reduction follows a surprise interest rate cut from the European Central Bank a few weeks ago, for the first time in more than two years. The cut, only the second since the ECB was established in 1998, brings the main euro-zone interest rate to 4.5 per cent. As a result, many variable rates are now below 6 per cent.
Irish Permanent, the Republic's largest mortgage lender, cut its variable rate to 5.89 per cent from 6.14 per cent, resulting in a monthly saving of £14.83 (€18.83) on a 100,000 20-year mortgage. The cut will come into effect on June 1st. Other lenders are in the same territory. First Active's rate is 5.88 per cent. But the joint banking venture between Superquinn and the TSB is passing on a 0.3 percentage point reduction to its customers - larger than the ECB cut. It is cutting its standard variable rate from 5.6 per cent to 5.3 per cent with effect from May 25th. AIB is just above this with a variable rate of 5.42 per cent.
But is there more to come? According to Mr Jim O'Leary, chief economist at Davy Stockbrokers, there are two ways of looking at this.
One view is that the ECB has disarmed its critics and created space to make decisions free from political pressure. The Bank has come under enormous pressure, especially from the US, to cut rates to boost economic growth in the euro-zone.
But after higher than expected inflation across the euro-zone last week, which, at 2.6 per cent, remains well above the ECB's target of 2 per cent, it may now put off further cuts.
Last week, ECB president Mr Wim Duisenberg said all indications suggested that inflation would be below 2 per cent by the end of this year, giving the Bank quite some time before it would next cut rates.
The other possibility, according to Mr O'Leary, is that the ECB will make a virtue of further rate cuts. This would mean it would also be fulfilling its obligation as a good global citizen by propping up the European economy as the US may be sinking into recession.
According to Mr O'Leary, the first scenario, where there are no more rate cuts for some time to come, is the more likely. That would mean it would not cut rates until inflation drops significantly. No one can tell for sure when that will be, but it is not likely to before September or October.
Whichever happens, few expect the ECB to follow the dramatic example of the US Federal Reserve, which has cut rates by 1.5 per cent since the start of this year. But either way it should make sense to stick with a variable rate mortgage. For those now coming out of one-year fixed rates, the repayment may increase slightly, but if the analysts are right repayments should be lower again by the end of the year.
The exception, of course, is those who cannot afford any increase in repayments. This makes fixed rates a sensible bet, although you will probably pay a little over the odds for at least some of the time.
Rates correct at time of writing
