There was little cheer for hard pressed Irish mortgage holders today as the European Central Bank opted to keep interest rates at 1 per cent.

Gloomy predictions of a recession in the euro zone and the ongoing debt crisis in Greece had led to speculation a new rate cut was possible.

The ECB’s main rate has never fallen below 1 per cent, but analysts believe that inflation and growth forecasts due in March could prompt a further cut.

Bloxham Stockbrokers concur with this view and this morning the company predicted another 25 basis point cut in rates to 0.75 per cent between March and May.

While a further rate cut, if it emerges, should come as good news for mortgage holders, particularly those on a tracker, lowered interest rates doesn’t always mean good news for bank customers.

Irish banks do not always follow the ECB’s lead, particularly when it comes to variable rate mortgage products.

While they must pass on rate cuts to tracker customers, they are not obliged to cut their variable interest rates in line with the ECB.

And with banks losing money on unprofitable tracker mortgages, the burden has fallen on variable interest rate products.

Holders of variable rate mortgages with EBS customers saw two interest rate rises between February and June, before the now AIB-owned lender raised rates for the third time in a year in August.

The final increase brought the bank’s variable rate to 4.93 per cent.

So reluctant have some lenders been to pass on ECB interest rate cuts that the Government intervened in a bid to force them to do so. There merits of the State telling banks it has been forced to save from insolvency to make less money and therefore remain reliant on the taxpayer are a debate for another day.

In November, Bank of Ireland, Ulster Bank and NIB refused to pass on the quarter-point ECB rate reduction. Other Irish lenders cut their rates, and after initially refusing to follow suit, AIB eventually relented.

December’s cut was passed on in part by some lenders. Bank of Ireland’s standard variable rate mortgage was reduced by 0.15 per cent, slightly lower than the cut implemented by the ECB.

EBS reduced its standard variable rate by 0.35 per cent, and Permanent tsb also passed on the full rate cut to all customers. The lender still remains the most expensive of the mainstream banks, however, with the rate for owner-occupiers with Permanent tsb at 5.19 per cent.

Bank of Ireland is in a slightly better position than other Irish lenders. It escaped total State control after it secured €1.1 billion in investment from a group of North American based backers that included Wilbur Ross and Fairfax Financial Holdings.

In August, the bank announced it would increase its standard variable interest rate on its mortgages by 0.5 per cent, with the hike taking effect from the following month.

That brought the new mortgage rates to 3.99 per cent for Bank of Ireland and 4.14 per cent for its subsidiary ICS Building Society.

The bank also took the opportunity then to bump up the rates on its loans, overdrafts and credit cards.

The result is that some variable rate customers are paying almost double the interest rates of those on a tracker.

Banks blame the high funding costs for the failure to pass on any reductions from the ECB.

It’s a risky strategy, considering that the number of mortgage customers in arrears is rising. According to AIB, about 4 per cent of its home loan customers are in arrears for more than 90 days.

Recent estimates by Moody’s say that up to a quarter of Irish mortgage debt could be written down under proposals in the Government’s personal insolvency legislation. That accounts for about €35 billion of Irish mortgage debt, including buy-to-let mortgages.

Since May 2009 the main ECB rate has been 1per cent which the exception of a

European interest rates dropped to a record low of 1 per cent in May 2009 and remained unchanged until April last year, when the ECB raised rates by a quarter of a percentage point.

Today the ECB has opted for a “wait and see” approach, with the central bank due to carry out a second low-interest, three-year loan operation later this month in a bid to boost bank lending and liquidity in the euro zone.