Mortgage interest rates down slightly as banks 'slow' to pass on ECB cuts

Interest rate on new home loans was 3.79% on average at the end of February, down 0.03% from January and 0.5% down from the same month in 2024

'Despite the ECB’s rate cuts, Ireland remains one of the five most expensive countries in the EU for mortgage rates,' said NFP Ireland senior mortgage advisor Ross Lynch. Picture: iStock

The interest rates charged on new mortgages declined slightly during February with further rate cuts expected but Irish mortgage holders may not benefit significantly given the “slow pace at which banks have reduced their rates”.

This comes as the European Central Bank (ECB) is due to meet over two days next week in order to discuss whether further interest rate cuts are warranted.

The global economic outlook has changed dramatically since the ECB last met in March. 

The imposition of tariffs on imports by the US, and the likely retaliation by the EU, means that prices are likely to go up as trading conditions deteriorate.

According to data from the Central Bank of Ireland, the weighted average interest rate on new Irish mortgages stood at 3.79% as of the end of February. This is down 0.03% from January and 0.5% down from the same month in 2024.

The eurozone average also decreased by 0.03% to 3.33%. Ireland has the fifth highest interest rates in the eurozone.

NFP Ireland senior mortgage advisor Ross Lynch said market expectations are “leaning toward further ECB rate cuts to boost growth in the eurozone while keeping inflation within the 2% target”.

Christine Lagarde and the rest of the ECB's governing council are due to meet next week. 

He said the market is piercing in a 0.25% interest rate cut next week with another rate cut expected in June.

However, Mr Lynch pointed out that banks have been slow to pass on the lower rates to customers “citing the fact that they did not raise rates to the same extent as the ECB in recent years”. He said: 

Despite the ECB’s rate cuts, Ireland remains one of the five most expensive countries in the EU for mortgage rates. 

"The slow pace at which banks have reduced their rates, particularly compared to the swift ECB interest rate rises in recent years, means that those outside of tracker mortgages may not see significant reductions,” he said.

The total value of pure new mortgage agreements increased to €779m in February, a €105m increase from January and a €138m increase year-on-year.

While interest rates on new mortgages decreased, the interest rates on new consumer loans increased by 0.42% in February. The total value of new consumer loans was €250m.

On Wednesday, ECB policymakers said that they stand ready to preserve financial stability in case of further market turmoil but the sector appears well prepared for the recent rout.

"The Bank of France and the ECB are fully mobilised to ensure the [eurozone] economy is well financed and [ensure] financial stability," French Central Bank chief Francois Villeroy de Galhau said .

The tariffs are still likely to have a deep impact on the euro zone and sources close to the ECB say that growth is likely to take a far bigger hit than the half a percentage point earlier predicted.

The ECB is now revisiting its own economic models and could present fresh estimates at next week's policy meeting.

In a speech, Finnish central bank chief Olli Rehn said “based on the overall assessment of inflation and growth, I believe the case for further rate cuts at the April meeting has clearly strengthened."

• Additional reporting Reuters