Cost of borrowing set to hit 1% low

THE cost of borrowing is expected to be cut to a record low today, resulting in further savings for home owners.

The European Central Bank (ECB) is widely tipped to announce its sixth rate drop since last summer, bringing rates to just 1%, from 4.25% in July last year.

Mortgage repayments on a e300,000 home loan will drop by €80 per month, bringing to e550 the monthly savings since September when the bank began its raft of cuts.

The expected 0.5% cut will coincide with today’s G20 summit in London which is aimed at bolstering global economic confidence.

Most tracker mortgages are set at between 0.5% and 1.75% above the ECB rate, so for someone with a e200,000 tracker over 30 years, monthly repayments will fall by e51 if today’s rate cut goes ahead.

Since last summer the monthly repayments will have come down by e365, according to the Irish Mortgage Corporation.

Variable rate mortgages are around 1.75% above the ECB rate, so a person with a e100,000 mortgage will save e27 on monthly repayments and will have saved e191 since September.

Director of the Irish Mortgage Corporation, Frank Conway, said most banks should pass on the full value of any reduction.

“However, there are a few lenders, such as Ulster Bank and NIB, that resisted passing along the cuts the last time, with NIB refusing to pass along any of the reduction. It remains to be seen if more lenders will join in on that resistance,” he said.

Economists are divided on whether borrowing costs at 1% will bring to an end the ECB’s rate-cutting drive.

Having effectively rejected the ECB moving to a zero interest rate regime, bank chief Jean-Claude Trichet has indicated the ECB has been considering unconventional measures.

This could include implementing a so-called quantitative easing policy, which is effectively printing money.

Many analysts believe it could still take a while before the ECB follows the world’s other leading central banks, the US Federal Reserve, the Bank of Japan and the Bank of England and lower rates below 1%.

Earlier this week Bank of Ireland chief economist Dan McLaughlin said he expected the ECB to cut interest rates to 1% today rather than wait until May.

National Irish Bank chief economist Dr Ronnie O’Toole said a key point of interest today will be whether the ECB announces any new non-standard measuresto boost the European economy.