As widely expected, this week, the European Central Bank (ECB) cut interest rates by a quarter of a percentage point, bringing the main deposit rate down to 2%.
It was the eighth consecutive cut, and the main interest rate is now at its lowest since the end of 2022.
Between September 2023 and this month, rates have fallen by two percentage points overall - down from 4%.
Welcome news for mortgage holders
While we're still a long way off from the zero-percent ECB rates that persisted in the wake of the financial crisis, the fresh reductions bring more welcome news for borrowers.
The 180,000 tracker mortgage customers in Ireland will see an immediate benefit, with their loans tracking the main ECB lending rate.
Borrowers on variable rates will also see repayments fall but not necessarily right away.
It will depend on the terms of their loan. Some lenders adjust variable rates monthly, others do it quarterly, while it can also be done on an annual basis.
The ECB's 25 June basis-point cut means that for every €100,000 borrowed, monthly mortgage repayments will fall by around €13.
This means payments falling by €65 monthly - or €780 annually - on a loan of €500,000.
However, fixed-rate customers - which the majority of borrowers tend to opt for - won't see their repayments dropping. Though they will be in a stronger position to get a lower rate once their fixed-term has ended.
Irish mortgage rates sixth highest in euro zone
Even with these latest cuts, Irish mortgage holders are still paying nearly half a percentage point more in interest than their euro zone counterparts, with rates here - averaging 3.67% - the sixth highest of the 20 countries using the euro.
Fixed rates here can be as low as 3%, but after the ECB announcement on Thursday Sinn Féin Finance spokesperson Pearse Doherty pointed out that some borrowers, whose loans were sold to so-called vulture funds by the pillar banks that needed to offload bad loans, are paying much higher rates.
According to Mr Doherty, last year there were over 100,000 households paying over 6% in interest to such funds, with 7,000 paying over 8.5%.
He said "that can mean handing over thousands of euro more a year to these vulture funds than they would even with the high rates at traditional banks".
The Sinn Féin TD is also calling on lenders to pass on the benefit of the ECB cuts promptly, adding that "the refusal by banks to pass on the benefit of interest rate cuts ... is completely unacceptable and the Government should immediately call in the banks.
Banks in the main have not cut mortgage interest rates in line with the four-interest rate cuts this year," he said.
But lenders will argue that they did not pass on all of the increases when rates were going up in previous years.
Good for borrowers, bad for savers
Anyone investing money and hoping for a decent return won't like falling interest rates.
Irish savers have around €160 billion on deposit and in recent months all of the main lenders - as well as the fintech banks - have reduced rates for savers and it's getting trickier to get make money on savings.
Interest rates are the ECB's main tool for managing inflation across the euro zone
Around 3% is the best rate available right now, though if you're looking to save more than a couple of thousands euro every month the rate will be closer to 2%.
But these deposit rates are falling in line with the ECB cuts, and by the end of the year the best rates on the market for savers are expected to be nearer 1.5%.
The advice to those looking to invest is to do so sooner rather than later to try and lock in a higher rate.
What's likely to happen next?
Interest rates are the ECB's main tool for managing inflation across the euro zone, with a target level of 2%.
When inflation goes higher, rates are increased to discourage borrowing and encourage saving to bring it down.
It's the opposite when inflation is lower - rates are lowered to help boost economic activity.
Latest figures show euro zone inflation has fallen just below 2% (1.9% in May down from 2.2% in April) and with fears of global trade uncertainty, weaker economic activity, and a strengthening euro, interest rates are expected to be reduced further in the coming months.
The general consensus is that we'll see the ECB lower its main deposit rate by another quarter of a percentage point - to 1.75% - and then settle at that point.
This means mortgage holders should get a further boost, while savers will need to look that bit harder to maximise any returns.
However, as with most things economy-related, trends are cyclical and we could easily end up in a new economic reality in the near future that necessitates the next cycle of either interest-rate cuts or rises.
Source: RTE.ie
