Irish tracker mortgage holders look set to get a bonus reduction of 0.35 of a percentage point in the interest rate on their loans this autumn, due to a rethink by the European Central Bank (ECB) of the gap between its different policy rates.
The ECB sees its main interest rate as being the deposit rate, which it pays to banks on deposits it holds for them. This rate is currently at 4 per cent and is expected to be cut as the year goes on.
However, tracker mortgage rates are priced off another ECB interest rate, the refinancing rate, which has recently been half a point higher and now stands at 4.5 per cent. This means that currently, the interest rates on tracker loans are typically in the 5.6 per cent to 6 per cent range. There are 180,000 tracker mortgage holders in the State.
However in a review of what it calls its operational framework, the ECB has announced that it will cut the gap between the deposit rate and the refinancing rate from 0.5 of a percentage point now to 0.15 of a point “as of September 2024″. Given that the ECB has reaffirmed that the deposit rate will remain the key interest rate for the bank, this means that the refinancing rate will drop closer to the deposit rate on that date.
