There is speculation that the ECB might cut the refinance rate from 0.00% to -0.10% on 25 July or later this year.
This should mean that a 70 bps tracker drops to 0.60% unless there was a zero floor clause in the tracker contract.
Davy have told the Sunday Times:
"Our understanding from engagement with the domestic banks is that loan documentation does not include any zero floor on the reference rate itself,” but if rates were to drop further "all the main banks told Davy it was unlikely that they could end up having to pay interest on tracker mortgages if rates fell far enough" but they could not offer "absolute assurance" on this.
So will banks drop tracker rates if the refinance rate goes negative? Seems that yes they will but only up to the point that the mortgage rate itself hits zero.
This should mean that a 70 bps tracker drops to 0.60% unless there was a zero floor clause in the tracker contract.
Davy have told the Sunday Times:
"Our understanding from engagement with the domestic banks is that loan documentation does not include any zero floor on the reference rate itself,” but if rates were to drop further "all the main banks told Davy it was unlikely that they could end up having to pay interest on tracker mortgages if rates fell far enough" but they could not offer "absolute assurance" on this.
So will banks drop tracker rates if the refinance rate goes negative? Seems that yes they will but only up to the point that the mortgage rate itself hits zero.