ECB interest rate cut: What does it mean for mortgage borrowers on trackers, fixed and variable rates?

Another rate cut from the European Central Bank (ECB)? I thought they were going to slow things down?

As recently as early last month, ECB governor Christine Lagarde was hinting that the cycle of interest rate cuts would be eased back.

But then US president Donald Trump upended global economic plans with his threats, tariffs, U-turns and more threats. We are now in a place where fears of a recession are likely to trump fears of inflation, so expect a few more rate cuts alongside this one (0.25 of a percentage point) before the year is out.

What does the rate cut mean for people in Ireland?

It will mean different things for different cohorts. The most immediate beneficiaries will be the 126,000 or so homeowners with tracker mortgages.

‘This is for everyone’: Rory McIlroy transcends orange-green divide in all-island game of golf

At home with Brendan Courtney by the sea in Wicklow: ‘I wanted to simplify my life’

Trump and the Irish tech bros: How the ‘crypto president’ is winning over Silicon Valley

But the rate-cut will also be welcomed by anyone newly in the market for fixed rate or those coming off a fixed rate in the months ahead. And, ultimately, variable rate mortgage holders and those who have mortgages held by so-called vulture funds are likely to see their rates fall, although that won’t happen overnight.

Will rate cuts for tracker holders happen overnight?

Not exactly overnight but soon. Banks have a window of around 30 days in which to lower the rates for their tracker holders.

And what will the latest cut be worth?

The ECB’s quarter-point cut equates to a €13 a month saving for every €100,000 owed on a tracker mortgage. Someone with an outstanding home loan of €250,000 is likely to be better off by around €33 a month from the end of this month.

But they are much better off than that, right?

They are. This is the seventh rate decrease since last June when the ECB cut rates by 0.25 per cent. It is actually the eighth if we include what the ECB referred to as a technical adjustment that amounted to a 0.35 per cent cut that kicked in last September. It means that the ECB’s lending rate is now 2.4 per cent compared with 4.5 per cent this time last year.

What do all those cuts mean in cold, hard cash terms?

A quarter point cut sees monthly repayments fall by €13 for every €100,000 left on a home loan. Someone who owes €300,000 will be paying a fairly hefty €344 a month less from the end of March than they were 12 months ago. Spread that over the cost for full a year and the savings come in at more than €4,100.

€300,000 is on the high side, right?

It is. “For the average tracker customer with around €150,000 left on their mortgage over 10 or 15 years, on a margin of 1 per cent, they’ll now be paying around €150 less each month compared to a year ago,” said Daragh Cassidy of price comparison and switching website bonkers.ie. That amounts to savings of close to €2,000 a year.

What about variable rates?

Financial adviser Michael Dowling said: “I do not expect any reduction in variable rates from the mainstream lenders, but any borrower looking for a variable-rate option should strongly consider the new Flex Mortgage announced by Bank Inter, formerly Avant Money. Variable rates from 3.3 per cent are available and will likely fall in the short term as the rate is linked to the 12-month Euribor rate.”

Trevor Grant of Irish Mortgage Advisors said it was “important to note that there is no direct correlation between home loan rates and ECB rate cuts. This is because lenders tend to price predicted cuts into their offerings and is exemplified by the fact that when the ECB increased interest rates by 4.5 per cent in 2022 ad 2023, banks only increased their home loan rates by just over 2 per cent on average.”

But it will be good news for people coming off fixed rates, right?

Yes and no. “I expect fixed rates to fall, but not like the reductions in tracker rates, but fixed options sub 3 per cent are a possibility by the third quarter of the year,” Mr Dowling said.

Mr Cassidy, however, warned some of those coming off fixed rates over the coming months “to be prepared to face a potential hike in their repayments”.

He pointed out that the lowest rate in the entire market was at present 3 per cent with AIB and PTSB – though we might see this fall slightly over the coming weeks. However, rates just under 2 per cent were available from Bank of Ireland and Avant Money until 2022, for example. So these mortgage holders might see their rate go up when they come to re-fix, especially if they don’t try switch to another lender.

And what about those with vulture fund mortgages? Mr Cassidy said they were likely to benefit and should see their rates fall from the “extortionate” levels being charged by some lenders.

Savers are going to pay a price, right?

“We’re also likely to see yet more cuts to savings and deposit rates,” Mr Cassidy said. Irish households have a record €160 billion resting on deposit with the Irish banks right now and, he said, “these savers are going to need to find better ways to manage their money”.

And what is likely to happen next?

The markets seem conceived the ECB will cut rates several more times over the rest of the year. Potentially taking the key rate down to 1.5 per cent or less.

But that is far from certain.

“Trump’s tariffs could prove inflationary to the world economy, not just the US, given the complex global supply chains that exist,” Mr Cassidy said. “Major companies could also decide to share the cost of the tariffs across consumers in multiple regions so that the large American market doesn’t take the full hit. Indeed Sony just recently decided to raise its PlayStation 5 prices in Europe and the UK by around 10 to 11 per cent while actually leaving them unchanged in the US.”

If inflation across the euro zone begins to creep back up cutting rates may be taken off the table. “The ECB’s main mandate is price stability – not economic growth,” Mr Cassidy noted.

Is it a good time to borrow?

Well, house prices are climbing at levels not seen since the Celtic Tiger, so that is alarming. Mr Grant said: “Despite falling ECB rates, Ireland is the fifth most expensive country in the euro zone for mortgages, with Irish homebuyers paying 0.46 percentage points more than the average.”