Mortgage blow as ECB holds 1% rate

MORTGAGE holders were disappointed that the European Central Bank chose to hold its benchmark interest rate at 1%, dashing hopes of a rate cut.

Mortgage blow as ECB holds 1% rate

Rachel Doyle, director of the group PIBA, said that Irish mortgage and insurance brokers had hoped the ECB would reduce rates. She said the “all too conservative” decision to simply hold at the 1% rate would do little to ease the very difficult economic environment and outlook.

“With consumer sentiment at a low ebb and with the continuing uncertainty in the eurozone a more aggressive cut is warranted, bringing the rate down to 0.5%, similar to that applying in the UK.

“The ECB should act more decisively and cut the rate to a more sustainable level and fix it for a period of time to create certainty. The drawn out approach is not going to help this or other economies as people do not know where they stand. The process should be quick and painless,” she said.

Most analysts now predict the rate cut will come in either February or March. Some lending institutions had hoped that ECB president Mario Draghi would announce a rate cut in a bid to stimulate economic recovery.

However, many European financial analysts had anticipated the ECB’s decision to stay at the 1% rate, interpreting this as a pause to assess the impact of back-to-back cuts and a slew of other measures it unleashed late last year.

In its bid to tackle the eurozone crisis, the ECB last month began giving banks ultra-long loans (LTROs), eased collateral rules and kept buying government bonds — as well as cutting rates for the second time since Mr Draghi took over the presidency in November.

Mr Draghi said: “The extensive recourse to the first three-year refinancing operation indicates that our non-standard policy measures are providing a substantial contribution to improving the funding situation of the banks, thereby supporting financing conditions and confidence,

“The more time passes the more we see signs it has been an effective policy measure, This decision has prevented a credit contraction that would have been [...] much, much more serious.”

In November, Mr Draghi surprised markets with a rate-cutting exercise, reversing earlier rate increases announced by his predecessor, Jean-Claude Trichet.

Frank Conway, director of financial advice firm, noted that any cut to the benchmark rate would have resulted in a drop to monthly repayments for 400,000 tracker mortgage holders.

Ireland also has an estimated 200,000 mortgage holders whose repayments are standard variable, but where mortgage lenders have more discretion whether or not they pass on rate cuts.

Mr Conway said: “This was the third meeting chaired by Mario Draghi and it may have been a bit much to expect that he was going for a three-in-a-row in respect to rate cuts.

“It’s a pity it [the rate cut] didn’t happen as each 0.25% cut in interest rates means about a €45 fall in the monthly repayment on a €300,000 loan.”

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