The holders of tracker mortgages in Ireland look set to benefit from a 0.35% reduction in their interest rates in September.
The development follows a technical change by the European Central Bank affecting the rate at which tracker mortgages are pegged to.
Tracker mortgages rates are typically made up of the ECB’s refinancing rate, currently 4.5%, plus a margin added by the lending bank.
These margins vary considerably, but are typically in the region of 1%.
Now, as part of an Operational Framework Review, the ECB says it is planning to reduce the refinancing rate by 0.35%.
This is to bring it more in line with its deposit rate, seen as its main benchmark rate, which is currently 4%.
This is the interest rate that the ECB pays to banks on money it holds for them.
Details of the development were first reported by The Irish Times.
Lenders here are likely to have to automatically pass that reduction on to their 180,000 tracker mortgage customers in Ireland, as they are contractually obliged to feed through fluctuations in the refinancing rate.
The 0.35% reduction could lead to savings of around €20 a month on an average tracker for every €100,000 borrowed.
Markets see it as likely that by the time the ECB lowers the refinancing rate on September 18th it will have already begun cutting all its rates, as inflation continues to fall back to its target of 2%.
Analysts expect that all ECB rates could be trimmed by as much as 1% this year.
The latest development will further complicate the picture for tens of thousands of mortgage holders whose fixed rate terms are due to come to an end in the coming months.
They will have to decide whether to fix again, or return to a variable in the hope that rates will come down markedly over the coming year or more.
The change announced by the ECB to the refinancing rate will not directly impact variable or fixed rates.
Article Source – 0.35% rate cut likely for tracker mortgage customers in September – RTE