Mortgage rates will fall to record lows as lending institutions begin the third round of reductions in two months. This fall follows a surprise move by the central banks of all member-states heading for monetary union to cut the level of interest rate in the single currency zone.
Most mortgage holders will enjoy a further fall in repayments from January, after the Irish Permanent, the State's biggest mortgage lender, immediately followed the Central Bank by cutting its variable interest rate by half a point to 5.5 per cent. This reduction, which comes into effect in January, will save homeowners £14 a month for a £50,000 mortgage, while the three reductions combined have trimmed the monthly cost by £59.
Following Wednesday's tax-cutting Budget, falling interest rates will stimulate the economy further and give another boost to the housing market.
But in contrast to the Republic, the bigger economies in the eurozone - such as France and Germany - are experiencing slower growth. This led to a decision at a lengthy board meeting of the European Central Bank last Tuesday to reduce the base wholesale money market interest rate at which the euro would start from the expected 3.3 per cent to 3 per cent.
The move, described as "rather sensational" by ECB president Mr Wim Duisenberg in an interview in today's Financial Times, effectively marks the start of common policy-making across the eurozone, just under a month ahead of the currency's introduction. Interest rates in the 11 euro zone countries apart from Italy are now level, marking for Ireland the final move down to core European levels.
Mr Duisenberg and other senior European central bankers insisted the reduction was not in response to political pressure, particularly calls from the new German Finance Minister, Mr Oskar Lafontaine, for lower rates.
The Central Bank of Ireland had no choice but to cut its rates, despite the large tax giveaway in this week's Budget and news that borrowing from banks and building societies continues to increase.
This raises fears of the economy overheating, although the bank played down this risk last night. According to a statement from the Central Bank, in agreeing an all-round reduction governors were impressed by the favourable outlook for stability in the euro area.
"At the same time, the international environment is still dominated by uncertainty and the risks are predominantly on the downside," a clear reference to the fear that the international economic crisis which started in Asia over a year ago is slowing the European economy.
Illustrating the Irish economy's strength, the bank published figures showing that the growth in borrowings from banks and building societies had accelerated to 25.1 per cent at the end of October from 23.9 per cent in September. At the same time, the rate of growth in mortgages increased to 19.6 per cent from 18.9 per cent.