€150m boost to tracker mortgage holders

Tracker mortgage holders will benefit to the tune of €150m from the latest ECB interest rate cut as their repayments fall from next week but those on variable mortgages look set to lose out once again.

The 375,000 tracker holders can expect to save €15 a month on every €100,000 borrowed as the ECB benchmark rate their mortgages are attached to fell to a low of 0.25%.

However, the chief executive of the Irish Brokers’ Association, Ciarán Phelan, said it is unlikely the banks will pass the savings on to other borrowers.

“This ECB rate decrease will be heralded as good news for those with tracker mortgages,” said Mr Phelan. “Banks and savers will bear the downside of this cut, however, and it’s unlikely that all banks will pass on the cut to those struggling variable rate mortgage holders as the cost of trackers weigh heavily on the banks’ balance sheets.”

Fianna Fáil finance spokesman Michael McGrath said ultimately banks need to make independent commercial decisions.

“But the Government is either the owner or a substantial shareholder in a number of the main banks here so it should use its influence to persuade the banks to pass on the rate cut so that consumers and the economy can benefit,” said Mr McGrath.

The interest rate cut may be good news for some mortgage holders but the Government is working in the background with the troika to find a solution on how to fund these loss-making tracker mortgages.

It is understood that, at a political level, the issue is a key part of negotiations with the troika, with a solution on how to deal with them yet to be reached.

ECB chief Mario Draghi said Ireland needed to take more action in the banking sector.

One ECB source told the Irish Examiner its preference was to phase out tracker mortgages over the next five years, with the 375,000 holders placed on variable rate mortgages.

This would require the Government to introduce legislation to break thousands of contracts, which is considered unlikely.

The solution now being examined will see banks put a guarantee on the first 10% of losses and government guarantee the remainder of the €50bn tracker mortgage book. The guarantee would be backed by Europe, so it would receive an AA rating.

Karl Deeter of the Irish Mortgage Brokers called the ECB’s fifth rate cut since 2008 the equivalent of a household stimulus. “Since 2008, the cut in interest rates have been worth about €6,400 a year per household,” said Mr Deeter. “The ECB has delivered a household stimulus scheme since 2008 but the Government has taken this back in taxes and charges.”

The ECB governing council faced pressure to act after a slump in eurozone inflation to 0.7% in October, far below the target of just under 2%.

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