The European Central Bank (ECB) has cut its main interest rate to a new low of 0.25 per cent in a surprise move which will knock hundreds of euro off the annual mortgage repayments of the majority of Irish homeowners.

The surprise quarter point cut in the bank’s benchmark interest rate follows a drop in inflation in the euro zone to its lowest level in four years.

While it is aimed at stimulating growth across the euro zone. the move will have a direct and immediate impact on hundreds of thousands of Irish mortgage holders.

For every quarter of a point the ECB lowers rates, the monthly cost of servicing a €100,000 tracker mortgage declines by about €15. The average tracker mortgage holder with an outstanding loan of €300,000 will see monthly savings of €45 from the beginning of next month.

As a result of the move - the fifth such rate reduction in the last two years - a person with a €300,000 tracker mortgage will now pay about €225 a month less than they were paying in the autumn of 2011. This amounts to a total annual saving of €2,700.

While the cut will be automatically be passed on to tracker mortgage holders, those with Standard Variable Rate (SVR) mortgages will have to wait for their individual banks to follow suit. Such a move is unlikely as banks are using SVR customers pay for loss-making tracker ones.