Boost for homeowners as rates set to drop again

HOMEOWNERS will rack up monthly savings of up to almost €500 since September if interest rates, as expected are slashed to their lowest level ever next week.

The European Central Bank (ECB) is expected to cut rates by 0.5%.

The move would result in savings of €493.03 for standard variable mortgage holders on a e300,000, 30-year home loan since September.

The next anticipated cut would see a further e83.73 slashed from the monthly mortgage bill when the ECB’s governing council meets next Thursday.

Savings are similar for those on tracker mortgages, with the monthly bill now e471.25 less since September, the last time interest rates were at their highest.

Director of the Irish Mortgage Corporation Frank Conway said: “For homeowners who do not hold fixed rate mortgages, the reduction will represent another significant savings on their monthly mortgage repayments.

“The savings per month when compared to September for some homeowners are enormous,” he said.

Mr Conway said now that interest rates are so low, it is becoming a “very prudent move” to set up a rainy day account which he said homeowners could draw on in the event of a disruption to income which could be caused by a reduction in salary, redundancy or an illness.

Analysts have predicted that the ECB will cut rates by 50 basis points next week.

ECB governing council member Miguel Angel Fernandez Ordonez said yesterday that the bank usually does not commit to anything but said “but wedon’t usually surprise the market”.

He said he favours not cutting interest rates as low as zero, while the bank was “obliged” to consider alternative tools to stimulate the economy.

“I’m among those who think that perhaps we shouldn’t go to zero as there could be stability problems for some financial entities, like investment funds or others,” he said.

“If we can avoid reaching zero then I think that would be reasonable.”

The ECB, which has reduced its benchmark rate by 2.25 percentage points since early October to 2%, is under pressure to follow the Federal Reserve and the Bank of England in announcing what other tools it may use to haul the economy out of the worst recession since WWII.

Fellow governing council member Axel Weber said on Tuesday that while the ECB probably will cut borrowing costs again, he sees a benchmark lending rate of 1% as the “lowest limit”.