ECB interest rate cut expected

MORTGAGE-holders may be in line for significant reductions on their monthly repayments with an interest rate cut predicted this week.

The European Central Bank (ECB) is expected to cut interest rates this Thursday, with some experts saying the cut could be as much as 0.5%. Some experts are also suggesting that the ECB will continue to cut rates next year to a record low of 0%.

Director of research at Savills, Joan Henry, said: “The ECB is expected to cut the base rate by at least 0.25% and more likely by 0.5% this week — it has to get the balance right between frightening the markets, which are already very sensitive to any and all developments in the eurozone, and showing that it is willing and able to acknowledge the current crisis by delivering a serious cut in rates.”

She said a 0.25% cut does not seem “sufficient” and a cut of 0.5%, followed by another 0.25% cut in the New Year is “easily warranted” on the back of the slowdown in eurozone economic growth and the funding crisis in the European banking system.

“An ECB rate cut of either 0.25% or 0.5% must be passed on to Irish mortgage-holders by all the banks. Mortgage-holders are struggling and those on variable rates and with trackers should receive the full benefit of ECB action, which in itself is designed to assist the market overall and boost the economic growth of eurozone member states,” she said.

A 0.25% cut on a €100,000 mortgage would results in payments dropping by €15 each month. A 0.5% would mean savings of €30 a month or €360 a year.

AIB chief economist John Beggs also pointed out that the ECB is widely expected to cut interest rates for the second consecutive month.

He is forecasting a 0.25% cut but is not ruling out the possibility of a “more aggressive move”.

“The post meeting press conference will be watched carefully as markets look for signs of a softening in tone from the central bank with regards to taking an increased role in the sovereign debt crisis,” he said.

Chief executive of the Irish Brokers Association, Ciaran Phelan, said tracker mortgages should receive the rate cut immediately.

“Many mortgage holders are struggling to understand why there is a 5% differential between the rate they are being charged for their mortgage and the current ECB rate. This appears to be a wholly unreasonable situation.”

He said variable rate holders had it worse. “The banks are desperate to maintain their deposit base so may be reluctant to pass on the latest rate cut to variable rate mortgage customers regardless of what the politicians say,” he said.

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