Boost for mortgage customers on the way as ECB set to deliver June interest rate cut

In what is set to be a massive boost for first-time buyers and those on ­tracker mortgage rates, the European Central Bank (ECB) could begin a string of cuts in June with a 0.25 percentage point reduction.

Economists said the odds shortened for a June rate reduction after eurozone inflation came down to 2.4pc in March, from 2.6pc the previous month.

This is close to the ECB’s target inflation rate of 2pc.

The Governing Council of the ECB, which decides on interest rates, meets next week. Some economists think the ECB could announce a rate cut at this meeting.

However, most economists believe the ECB will wait for more ­information on wage rises and will cut in June.

Today's News in 90 seconds - 4th April 2024

June’s rate reduction could be part of a number of cuts that will reduce the eurozone’s refinance rate from 4.5pc to 3pc by the end of the year.

Borrowers have been pummelled by 10 interest rate rises in the past two years.

The hikes have put huge pressure on mortgage holders, with those on trackers seeing their annual interest bill quadruple from €1,000 a year to €4,400. This is based on a typical tracker customer with around €110,000 left to repay.

The ECB’s refinance rate, the reference rate that trackers and variables are priced off, is now 4.5pc.

This means a typical tracker rate is now 5.75pc.

Those whose mortgages are trapped with vulture funds, and managed by the likes of Pepper, have seen their variable rates rise to 8pc and more. These funds will not allow them to opt for a fixed rate.

Around 70,000 homeowners who are coming off fixed rates this year can expect to see monthly repayments on any new fixed rates surge.

The average rate on a new mortgage in this country is now 4.27pc.

This is double the typical fixed rate people were able to get just 18 months ago.

However, mortgage experts have warned that the three main banks, Bank of Ireland, AIB and PTSB, are unlikely to fully reduce fixed rates for new customers and those coming off an existing fix.

They will argue they did not pass on all the ECB rate rises on mortgage rates, so they will not pass on the full extent of ECB rate reductions.

Independent economist Simon ­Barry said: “We are on track for a rate cut in June after overall inflation and core inflation in the eurozone fell in March.”

He added loan prices were still rising, but the rate of ­increases has slowed.

Broker Michael Dowling said that he expects banks here to only pass on half of any reduction in ECB rates.

“If ECB rates fall by 1.25 percentage points, the banks are only likely to pass on between 0.6 percentage points and 0.75 points of that,” he said.

ECB Governing Council member Robert Holzmann, who is governor of Austria’s central bank, said the ECB could start cutting interest rates in June in response to inflation falling quicker than expected.

“April is not on my radar,” Mr Holzmann told Reuters in an interview. “In June we will have more information.”

Mr Holzmann is considered by some to be the single most conservative member of the ECB’s 26-member Governing Council.