ECB rate cut: what’s in it for me?

More good news for Irish homeowners, is that right?
There’s certainly good news for some Irish homeowners with the confirmation that the European Central Bank (ECB) is cutting its main interest rate by a quarter of a percentage point, taking it from 3.5 per cent to 3.25 per cent.
Again? The ECB board has had a busy few months hasn’t it?
It sure has. The latest rate cut is the third official rate cut since June – the fourth if a technical rate adjustment which it rolled out in September in order to cut the gap between its main refinancing operations rate and its deposit rate is included. Today is also the first time in 13 years that the ECB has announced back-to-back cuts, having last done so at the height of the financial crisis in 2011.
And what is behind all this cutting?
It is all very complicated but, in essence, the ECB is now happy that euro zone inflation is under control after the guts of two years when it was spiralling. Inflation across the euro zone is now hovering around the magic 2 per cent mark that is always the ECB’s goal. Not only that but the bank is concerned that economic growth across the bloc is sluggish and is keen to do something to promote growth.
So the rate cuts are good news for everyone?
Well, not everyone – savers won’t be happy. And we have a lot of savers in Ireland. In fact around €150 billion is on deposit and the cuts of late will see deposit interest rates stagnate or even fall. It is, however, instantly good news for around 180,000 tracker mortgage holders who will be better off from the end of the month.
How much better off?
A 0.25 percentage point cut will see the average tracker mortgage holder’s repayments fall by €13 for every €100,000 they owe. A person with a loan of €250,000 will save around €33 a month or just under €400 a year.
And that will be on top of the earlier cuts right?
That’s right. There was a quarter of a point cut in June and another one in September. The technical adjustment also impacted tracker holders and saw rates fall by a further 0.35 of a percentage. That all means that tracker mortgage holders will have seen their interest rates fall by 1.1 per cent between June and the end of this month, amounting to a saving of around €140 a month on that €250,000 mortgage balance – or close to €1,700 over the course of a year.
That is great news?
It is but context is key here. After 10 hikes and now four cuts, tracker mortgage holders are still paying far more than they were in early 2022. The monthly repayments for many remain around €350 higher than they were.
And is that it for cuts?
Probably not. It’s too early to say and events can mess around with the best laid plans of the Frankfurt bankers pretty quickly but the smart money is on another rate cut in December and possibly three or four more cuts over the course of 2025.
And what about non-tracker holders?
While the tracker set will see the immediate benefit of rate cuts, they should eventually impact all borrowers. Before the first ECB drop in June, the main banks in Ireland had decreased rates by up to 1 per cent as the cut was anticipated and priced into the market in advance. The fact that the ECB has moved faster than many thought to cut rates will put pressure on lenders to cut rates faster which will benefit those with standard variable rate mortgages and – ultimately – those on fixed rates, although only when fixed rate period ends. Within minutes of the announcement, ICS Mortgages announced it would cut its variable rates by a quarter point – but only from December 1st. The moves should also make loans more affordable for first-time buyers in the months ahead if not immediately.