Tracker mortgage holders on alert as doubt cast over expected ECB rate cut next month

Irish Independent

13-05-2025

ECB board member Isabel Schnabel said turmoil in the global economy was fuelling price pressures. Her comments came as a new mortgage lender cut its lending rates by up to 0.95 percentage points.
Ms Schnabel said inflation was at risk of ­exceeding the ECB's 2pc target in the medium term. The ECB's main role is to control inflation and it uses interest rates to achieve this.
The Frankfurt-based central bank has cut rates seven times in the past year, with another 0.25 of a percentage point rate cut expected on June 5, a move that would directly benefit 130,000 tracker mortgage holders.
Two additional rate cuts later in the year had been expected by markets.
Rate cuts should make borrowing more affordable for first-time buyers if banks and non-bank lenders pass on the lower eurozone rates in the form of lower mortgage rates.
However, lower mortgage rates would also leave more new borrowers chasing a limited supply of housing for sale.
Ms Schnabel cast doubt on new cuts. She wants to keep rates unchanged since they are already low enough not to hold back the European economy. 'Now is the time to keep a steady hand. The appropriate course of action is to keep rates close to where they are today,' Ms Schnabel told a conference.
Financial markets see a 90pc chance of a rate cut in June and expect another cut or two in subsequent months, indicating that Ms Schnabel's view goes counter to investor bets.
In the near term, inflation could even dip below the ECB's 2pc target, Ms Schnabel said.
This is due to lower energy costs, a strong euro, anaemic economic growth in the ­eurozone and high uncertainty created by the US administration's trade war, she said.
But there is a big risk that costs could go the other way, and rise, in the medium term, pushing up inflation.
Inflation in the currency zone could be boosted by an expected spending surge by governments in the eurozone, driven by ­Germany's pledge to boost defence and infrastructure investment. Damage to international trade due to US-imposed tariffs could also push up costs and boost prices.
Non-bank lender Núa Money has reduced its rates across its residential mortgage and equity release products, with cuts of up to 0.95 of a percentage point on its Switcher Extra mortgage product.
Núa, which began lending in Ireland only late last year, said it would have new rates starting from 3.6pc for first-time buyer, ­mover and switcher products.
Mortgage broker Michael Dowling said reductions in rates were always welcome.
But he said that in relation to ­owner-occupier rates, the reduction of 0.25 of a percentage point would be geared to those borrowing less than 70pc loan to value, which would exclude the majority of first-time buyers.
Mr Dowling said that, for second-time ­buyers, the three- and five-year fixed offerings were very competitive, where the loan-to-value is typically less than 70pc.
The reduction of 0.25 of a percentage point would save borrowers €39 a month on a €300,000 mortgage, he said.