ECB rate cuts won't be fast enough for 70,000 Irish households on fixed-rate mortgages

Senior mortgage broker Michael Dowling said: 'When ECB rates went up, not all of the increases were passed on by the banks. By the same logic, the full decreases will not be passed on.'

Remarks of Christine Lagarde, president of the European Central Bank, will be scrutinised on Thursday for any hints of just when the ECB is minded to start cutting rates.

Both main Irish banks predict the European Central Bank (ECB) will start cutting interest rates in the coming months, but reductions in official interest rates will unlikely be fast enough to prevent 70,000 households, whose fixed-rate loans expire this year, from paying more.   

AIB chief executive Colin Hunt predicted on Wednesday the ECB will start cutting at its June meeting, and will have reduced its key deposit rates currently at 4% to 2.75% by the end of the year. His counterpart at Bank of Ireland, Myles O'Grady last month predicted something of the same outlook, but with the ECB possibly starting to cut a month earlier.   

The forecasts come ahead of the ECB meeting in Frankfurt on Thursday when financial markets expect the Governing Council, which started out on its campaign to hike rates in July 2022,  will retread its message that it's still too soon to declare victory over inflation. Remarks by president Christine Lagarde will be scrutinised for any hints of just when the ECB is minded to start cutting rates.  

Mortgage experts say any rate cuts can't come soon enough for the 70,000 households whose fixed-rate loans expire this year, and for the 179,000 tracker mortgage households who have faced the brunt of the rapid rise in official interest rates since the summer of two years ago. That's because the monthly service payments for tracker households are directly linked to changes in ECB official rates.  

Senior mortgage broker Michael Dowling said that the 70,000 households, of a total of 430,000 households in the Republic on fixed-rate mortgages, whose rates expire this year still face re-financing to higher rates even if official ECB rates were to fall by December. They are typically paying back their existing mortgage loans at rates of 2.25%, and new fixed-rate mortgages will be costlier even if ECB official rates fall sharply by the end of the year. 

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Irish banks will also be in no hurry to pass on the benefits of the ECB cuts to customers, Mr Dowling said. "When ECB rates went up, not all of the increases were passed on by the banks. By the same logic, the full decreases will not be passed on," he said. 

After Thursday, the ECB next meets on April 11, June 6, and then on July 18 before its summer break. 

Broker and managing director of MortgageLine, Stephen Hamilton, echoed Mr Dowling. He does not see mortgage lenders cutting rates in the short term “no matter what the ECB does”. Mr Hamilton said it is looking unlikely the regulator will cut rates before June as, even though inflation is cooling, there is “still too much volatility in the world”.