Tracker mortgage holders to get unexpected rate cut after technical change

The move could save a typical tracker holder around €250 a year for every €100,000 left to pay.

There are close to 180,000 tracker mortgages left in the country despite the fact that banks stop writing them years ago.

People with these mortgages have seen huge increases in their monthly repayments following 10 interest rate rises by the European Central Bank (ECB) in the past year and a half.

The change being implemented will see the ECB interest rate that trackers are priced off come down by 0.35 percentage from September.

Tracker contracts are set up so that the rate paid by the borrower is at a set margin over the ECB refinancing rate.

The margin is usually between 1 percentage point and 1.25 percentage points above the ECB refinance rate.

As the refinancing rate is currently 4.5pc it means most tracker holders are paying 5.5pc to 5.75pc in interest.

However, the ECB plans to lower the refinancing rate to bring it more into line with its deposit rate, according to information that was first published in the ‘Irish Times’.

The ECB deposit rate is 4pc.

Today's News in 90 seconds - 14th March 2024

In a note on its website the ECB said it was reducing the spread between its deposit rate and its refinancing rate to “15 basis points as from 18 September 2024”.

The governing council of the Bank is anxious to avoid having too big a gap between the various rates its offers banks.

This is in addition to cuts in all the ECB’s rates which are expected by the market from around June.

The narrowing of the gap between the ECB’s deposit and refinancing rates will benefit tracker holders separately to any rate reductions.

The lowering of the refinancing rate by 0.35 percentage points is likely to cut monthly repayments by between €15 and €20 for every €100,000 owed.

If the ECB also moves to cut its rates in the summer, up to four times, tracker customers could save around €60 a month on a typical tracker with €100,000 left on to pay.

This works out at around €720 a year.

And a tax credit was announced in the last Budget to help people deal with the surge in interest rates.

It applies to variable and ­tracker-rate mortgage holders who have been hit by 10 rises in the European Central Bank (ECB) rate, but not to those on fixed rates.

Mortgage experts have said the payment will end up going to a large number of tracker mortgage holders who do not need it.

The fact that the relief excludes those who started on trackers or variables but then opted to fix has been labelled unfair.

The measure will cost €125m and 165,000 mortgage holders are expected to benefit. The relief is only for one year.

For a homeowner who has seen the interest part of their mortgage rise by €2,000 over a year, the relief will be worth €400, according to Marian Ryan, director at Taxback.com.