ECB cuts interest rates for the first time since 2019, with tracker mortgage holders the big winners

The Frankfurt-based central bank’s refinancing rate, which tracker mortgages here are priced off, has come down by 0.25 percentage points to 4.25pc.

The European Central Bank (ECB) move was widely anticipated and attention will now focus on how many more reductions there will be in the coming months.

The reduction, which will see rates falling from a 22-year high, will be a big boost to tracker mortgage holders, as their rate moves in line with the ECB refinance rate.

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

They have been the worst hit by the ECB hiking its key lending rates 10 times up to last September.

People with trackers will see €13 shaved off their monthly repayments from next month as a result of the ECB reduction, meaning a saving of €156 a year.

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

Tracker holders are also in line for another 0.35 percentage points reduction in September when the ECB makes a technical adjustment to its rates.

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

Inflation has come down from a peak of 10.6pc in October 2022 to 2.6pc in May this year.

However, variable and fixed rates may not come down on the back of the latest ECB move, 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” today’s rate reduction.

Lenders also argue that they did not pass on all the ECB rate rises when pricing new fixed rates and on variable rates.

Some 70,000 homeowners are coming off fixed rates this year.

Green fixed rates as low as 3.45pc are available from banks in the market, way up on rates that were available before the ECB started raising its rates, but better than were on offer a few months ago.

Some credit unions have even lower rates.

There will now be huge pressure for vulture funds that own tens of thousands of mortgages to reduce rates for their customers.

Many of these are described as mortgage prisoners as they cannot switch to other lenders if they have poor credit histories, while the servicers of these mortgages, such as Pepper, do not offer fixed rates. Many mortgage prisoners are paying rates in excess of 8pc.

Analyst at specialist bank Investec in Dublin, Justin Doyle, said he anticipates two further 0.25 point cuts at the ECB’s September and December meetings this year.

But he said this was dependent on inflation coming down to the ECB’s target of 2pc.

Daragh Cassidy of broker Bonkers.ie said the cut in interest rates by the ECB was well flagged. And several mortgage lenders have already cut their fixed rates over the past few weeks in advance of the move.

Those on variable rates may have to wait to see any reductions though, he said.

“The main banks only passed on a fraction of the ECB rate hikes to their variable-rate customers in the first place. Mind you, variable rates in Ireland were very high to begin with.

“So, there may not be much movement from the banks here, at least initially,” Mr Cassidy said.