There is normally some mention of how a rate cut saves a borrower €x amount on their monthly mortgage, but how much has it done so since 2008? The base rate peaked in July 2008 at 4.25% it now stands at 0.5% meaning there is a 3.75% reduction on borrowing costs for over half of the market who have trackers (boom time buyers mainly).
If each 0.25% rate drop equals about €13 per 100,000 borrowed over 25 years, and we take ‘average mortgages’ as being (although the actual average is lower we are going higher because trackers by their nature tend to be larger debt amounts) €250,000 then you do the following…
€250,000/100,000 x 13 = €32.5 per month or €390 per year. There has been the equivalent of 15 cuts of 25 basis points or 0.25% so you can multiply the €390 by 15 to get total annual improvement in finances due to rate cuts, that figure is €5,850.
Can’t help but think that we’d be in far deeper trouble if it wasn’t for Draghi.
Does that meant that the banks that don’t pass on a drop in the rate are making an extra €5,850. from each mortgage holder?