ECB cuts interest rates to 2% in good news for mortgage holders and first-time buyers

LAST UPDATE | 23 hrs ago

THE EUROPEAN CENTRAL Bank (ECB) has cut interest rates by a quarter of a percentage point to 2%, and first-time buyers stand to gain from the decision.

It is the bank’s eighth interest rate cut in the last 12 months, with officials having shifted focus from taming consumer price rises to easing pressure on the sluggish eurozone economy.

The 2% reduction is welcome news for tracker mortgage holders, who would benefit immediately from the move, along with other borrowers. 

Today’s news has been met with optimism by personal financial planning consultants who say the cuts are welcome news for first-time buyers.

“For first-time buyers especially, the lower rate could slightly improve affordability by increasing borrowing power and reducing monthly repayments,” said Ross Lynch, NFP’s senior mortgage advisor.

“Though the impact may be limited without parallel action from Irish lenders,” he said.

For a €325,000 mortgage repaid over 30 years at a 3.6% monthly rate, a person will pay of €1,477.60 per month.

If lenders in Ireland pass on the full 0.25% ECB reduction, this will bring rates down to 3.35%, meaning repayments will fall to €1,432.33, saving €45.27 per month or €543.24 per year.

“Unless banks reflect this cut quickly and fully, the benefit to consumers will remain muted,” Lynch said.

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He added that the salient issue of housing supply in Ireland may offset any affordability gains granted by the ECB decision, potentially causing demand to shoot up to the detriment of house prices.

“While lower rates improve affordability, they can also lead to increased borrowing power which, in a market with tight supply, may drive house prices even higher,” Lynch said.

Weighing the benefits of the ECB’s cut for variable and fixed rate mortgage holders, Lynch advises switching to a fixed rate to deliver better value.

“Variable rate holders may benefit if their lender passes on the rate cut but variable rates remain among the highest on the market. Fixed-rate holders won’t see an immediate impact.”

Thomas Pugh, economist at consulting firm RSM Ireland says the ECB should be more concerned with economic growth rather than inflation as a result of Trump tariffs.

He said: “At the moment US tariffs are having a disinflationary impact from additional Chinese goods flowing into the EU, lower commodity prices, a stronger euro and slower economic growth.”

However, Pugh says the shelved retaliatory tariffs by the EU could divert the ECB’s attention away from continuing to cut interest rates to the extent seen today.

“One risk is that the EU imposes retaliatory tariffs, which could boost inflation and complicate the ECB response.”

Despite falling ECB rates, Ireland is the fifth most expensive country in the eurozone for mortgages, with Irish homebuyers paying 0.46 percentage points more than the average interest rate on new mortgages across the euro zone, according to a recent Central Bank report.

The ECB’s series of cuts stands in contrast to the US Federal Reserve, which has kept rates on hold recently amid fears that Trump’s levies could stoke inflation in the world’s top economy.

With reporting from Keith Kelly and © AFP 2025

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