Relief for mortgage holders as string of rate cuts on the way

People on tracker mortgages are in line for two interest rate cuts in the next three weeks.

Falling inflation across the eurozone means the European Central Bank (ECB) is on course to cut its interest rates again next month.

Another reduction in December also looks likely, meaning a string of cuts offering relief for home owners.

Tracker mortgage holders are also set for a one-off special cut in the interest rate their payments are based on. This is likely to be implemented in three weeks’ time.

An ECB interest rate cut is almost certain next month after new inflation figures for Germany, Spain and Ireland showed the rate of price increases is coming down.

Analyst Justin Doyle in the Dublin offices of specialist bank Investec said figures from Germany show prices there have fallen sharply this month. Spain’s inflation has fallen to its slowest pace in a year.

Mr Doyle said it was expected that data due out today for eurozone inflation will come close to the ECB’s target of 2pc earlier than expected.

He said this was leading the money markets to price in more rate cuts.

Investec is pricing in a 0.25 percentage point ECB cut next month, in line with market expectations, and another 0.25 cut in December. Mr Doyle said his firm also expects another full percentage point of cuts next year.

In June, the ECB cut its refinancing rate, which tracker mortgages here are priced off. It came down by 0.25 percentage points to 4.25pc.

Next month, tracker holders are in line for a special 0.35 percentage point reduction when the ECB makes a technical adjustment to its interest rates.

The ECB Governing Council meets on September 12, when it is almost certain to announce a second rate cut.

The technical adjustment to the refinance rate, to bring it more into line with the ECB deposit rate, has been scheduled to be implemented on September 18, according to independent economist Simon Barry.

There are 180,000 customers with ­tracker mortgages, which represents around a quarter of the mortgage market.

The ECB, which is headed by Christine Lagarde, is cutting interest rates as it feels the 10 increases it implemented up to September last year have contributed to bringing down the headline inflation rate in the eurozone.

Inflation across the eurozone has come down from a peak of 10.6pc in October 2022 to close to 2pc now.

Tracker mortgage holders have been the worst hit by the ECB hikes. Every 0.25 cut in the ECB refinancing rate means people with trackers will have €13 shaved off their monthly repayments, meaning a saving of €156 a year.

The technical adjustment to the refinance rate of 0.35 points will knock another €17 off monthly repayments for a typical tracker holder, or around €200 a year.

This is based on a homeowner couple with 15 years left to pay and €100,000 outstanding.

Variable and fixed rates may not come down on the back of the ECB’s rate-cutting move next month, brokers said.

That is because recent cuts in fixed and variables by AIB, Haven, EBS, Bank of Ireland, PTSB and Avant Money had “priced in” last June’s rate reduction and the one due in September.

Lenders also argue they did not pass on all the ECB rate rises when pricing new fixed rates and variable rates. About 80,000 homeowners are coming off fixed rates this year.

Meanwhile, prices rose here this month, but the rate of the increase has come down. The official measure of inflation used in the EU was 1.1pc for Ireland this month compared with the same month last year, according to the Central Statistics Office.