ECB interest rates cut confirmed but how much will tracker mortgage holders save?

The European Central Bank has confirmed that it is to cut its interest rates by 0.25 as inflation across Europe appears to be under control. 

The ECB rate, which tracker mortgages in Ireland are priced off, has now dropped to 4.25pc.

The latest move by the ECB was widely expected with speculation already focusing on when further cuts will follow.  It has already been forecast that rates will be cut another two times in 2024. 

This latest interest rate drop will be a boost for tracker mortgage holders who endured a series of 10 price hikes over the last year and a half. 

There are around 180,000 customers with ­tracker mortgages in Ireland, which is around a quarter of the Irish mortgage market.

The cut will see the a reduction of €13 per month for a person with an outstanding mortgage of €100,000.

"While any reduction is welcome, tracker mortgage holders will be hoping that the same pace and scale they experienced with rate rises in the past two years will also be reflected in downward movements,” said Martina Hennessy, CEO of doddl.ie

“The ECB is set to remain cautious in its approach to reducing rates, continuing to monitor inflation closely,” Ms Hennessy said.

“Further meetings of the European Monetary Policy Committee are scheduled for September and December, where they will review inflation data and the impact of the June reduction.

“Recent rate cuts by lenders have been influenced by reduced funding costs, with many already anticipating potential ECB rate cuts,” Ms Hennessy noted.   

“Current rates start from 3.45%, yet there is a significant disparity in the market, with the highest rates being double the lowest.

"We may see further decreases on individual rates, and non-bank lenders, who are lending at rates up to 7%, should start to reduce rates as funding costs decrease. Competition is key to ensuring there is discipline in the market and keeping rates low."

“For homeowners who secured mortgages post-2008 without tracker rates, an ECB rate drop will not automatically result in decreased rates. Bank rates are influenced by their funding mix and the cost of acquiring funds to lend,” said Ms Hennessy.

"The rate decreases we have seen over the last two months have already factored in anticipated ECB rate decreases. It is impossible to predict future rates accurately, but we are unlikely to see rates fall to the low levels experienced pre-2022.

"From 2016 to 2022, we experienced a period where rates dropped to sub 2% due to low bank funding costs. It would take extraordinary economic circumstances for rates to drop back to these levels in the near future," Ms Hennessy said.