Inflation rising, interest rates and Irish mortgages

De Dannan

If global inflation gets going strong we are likely to see the ECB hike interest rates to calm things down. This would potentially cripple some of the 600,000 Irish people on traker mortgages who are already close to the edge
I assume that these hikes will be passed onto the people by the Irish banks.

Is this the next financial crisis we have coming down the tracks?
I dont even hear much from the politicians about it

th3 s1aught3r

Its the next financial crisis we are facing. The ECB will start to raise rates becasue they are feraful of inflation, we are seeing commodoties going up such as oil recently etc
They wont care so much how it will effect Irish mortgage holders but a few percent could send tens of thousands into turmoil financially seeing so many are already close to the edge
I dont know what the answer is tbh

Cookie_Monster

De Dannan wrote: »

Is this the next financial crisis we have coming down the tracks?
I dont even hear much from the politicians about it

Yes it is.

You don't hear the politicians banging on about it because its personal debt that people took out on their own backs. You can't expect politicians to just wade in without enormous backlash from all the people who didn't go out and get huge mortgages.

There are plenty of unfortunate people who lost their jobs and as a result are struggling to pay back mortgages, but there are also plenty of others who just borrowed way to much without think that interest rate would, without question, go back up to levels we saw in the 80's and 90's.

In the next 2-3 years rates will be well over 10% IMO, little of the pain has been felt yet and the lid is still just about on the crisis, but once the German economy starts rolling again ECB rates will rise, and will rise a decent amount.

Permabear

This post has been deleted.

Gumbo

De Dannan wrote: »

If global inflation gets going strong we are likely to see the ECB hike interest rates to calm things down. This would potentially cripple some of the 600,000 Irish people on traker mortgages who are already close to the edge
I assume that these hikes will be passed onto the people by the Irish banks.

Is this the next financial crisis we have coming down the tracks?
I dont even hear much from the politicians about it

im fearful of whats going to happen.
i have a job
i get paid

im blessed in that sense, but my mortgage is getting so close to cripling me at present, i dont know what im going to do when :
A - my wage gets cut
and
B - my mortgae goes up

pay day is not a happy day anymore, or not something i look forward to anymore as it comes in on thursday and i simply online transfer it to

Bank Of Scotland (mortgage)
ESB
Bord Gais
Credit Union (small loan)

im literally left with enough to cover the shopping, no luxuries etc etc

jester77

I'm not having a go at anyone here but did people not consider that interest rates would go up when they took out their mortgages? Or were they naive enough to believe that interest rates would always remain low. Whatever about not being able to predict a property crash, I thought it was common knowledge that interest rates were historically low and that once the EU economy started to pick up then so would interest rates, or maybe I am wrong here?

RichardAnd

jester77 wrote: »

I'm not having a go at anyone here but did people not consider that interest rates would go up when they took out their mortgages? Or were they naive enough to believe that interest rates would always remain low. Whatever about not being able to predict a property crash, I thought it was common knowledge that interest rates were historically low and that once the EU economy started to pick up then so would interest rates, or maybe I am wrong here?

Many possibly didn't understand how interest rates work. Honestly, the more I read, the more I become frightened of ever taking out a mortgage.

Eventually, the issue of hundreds of thousands of people being up to their eyeballs in debt is going to kick up a stink.

ardmacha

'm not having a go at anyone here but did people not consider that interest rates would go up when they took out their mortgages?

Some didn't think of anything. The more prudent did think of interest rates going up, but probably hadn't modelled a large take home pay cut and an interest rate increase at the same time.

uberalles

kceire wrote: »

im fearful of whats going to happen.
i have a job
i get paid

im blessed in that sense, but my mortgage is getting so close to cripling me at present, i dont know what im going to do when :
A - my wage gets cut
and
B - my mortgae goes up

pay day is not a happy day anymore, or not something i look forward to anymore as it comes in on thursday and i simply online transfer it to

Bank Of Scotland (mortgage)
ESB
Bord Gais
Credit Union (small loan)

im literally left with enough to cover the shopping, no luxuries etc etc

I remember reading in some rag in the 80s a couple that could go to McDonalds and the cinema once in the month after repayments were made. Them days are returning, but It wont be for ever for you I hope.

danbohan

uberalles wrote: »

I remember reading in some rag in the 80s a couple that could go to McDonalds and the cinema once in the month after repayments were made. Them days are returning, but It wont be for ever for you I hope.

or there are those of us old enough might call it normality and not the credit based lifestyles we have seen for last 10-12 years

fliball123

jester77 wrote: »

I'm not having a go at anyone here but did people not consider that interest rates would go up when they took out their mortgages? Or were they naive enough to believe that interest rates would always remain low. Whatever about not being able to predict a property crash, I thought it was common knowledge that interest rates were historically low and that once the EU economy started to pick up then so would interest rates, or maybe I am wrong here?

It still doesnt solve the problem..the prevous poster is not even taking into consideration the next 4/5 years of tax increases...

These people who are in trouble with their mortgage need some assistance otherwise there will be a wave of defaults and the tax payer will have to pick up the tab unfortunately..better to assist upfront instead of 2/3 years of them struggling and then handing back the keys and fleeing the country...Enabling these people to have a bit more cash for decresionary spend can only be good for the ecconomy

Treehouse72

Very interesting exchange between Morgan Kelly and Ronan Lyons about this recently.

Kelly's now famous "If you thought the bank bailout was bad, wait until the mortgage defaults hit home" article predicted €100b worth of bank losses, a large portion being mortgages:

http://www.irishtimes.com/newspaper/opinion/2010/1108/1224282865400.html

Lyons responded saying this could be wrong and that the mortgage problem might only be €1b:

http://www.ronanlyons.com/2010/12/14/mortgage-arrears-and-the-banks-a-e100bn-problem-or-a-e1bn-problem/

I respect both these commentators, so it's really a very interesting difference of opinion.

Bullseye1

Is there no other tool or facility available to the ECB and the EU in general to hasten the increase in inflation besides raising the interest rate? It appears to me that the increase in inflation is based on commodity prices like oil going up due to demand in China etc and the current unrest in the middle east. People are already paying off their credit card bills and switching to saving.

How will increasing interest rates solve this problem. They will have less disposable income to buy foods and fuel in order to pay off their mortgages. They will spend less sure but this will just slow down the EU growth even further.

It's interesting that the inflation rate is much higher in the UK yet they have not increased interest rates. The government their recognise there that by doing so they will kill whatever chance they have of bringing down their deficit as quickly as they would like.

sollar

Cookie_Monster wrote: »

In the next 2-3 years rates will be well over 10% IMO, little of the pain has been felt yet and the lid is still just about on the crisis, but once the German economy starts rolling again ECB rates will rise, and will rise a decent amount.

I don't think they will go well over 10% but they may come close. That will be very interesting because that will tip many many more over the edge.

I wont be able to service my mortgage at 10%. But thankfully i'm not on NE. I would have to sell.

There will need to be new bankruptcy laws by then so people can had back their keys. Otherwise people will never work again and will spend their days recieving rent allowance and dole at the states expense.

danbohan

sollar wrote: »

I don't think they will go well over 10% but they may come close. That will be very interesting because that will tip many many more over the edge.

I wont be able to service my mortgage at 10%. But thankfully i'm not on NE. I would have to sell.

There will need to be new bankruptcy laws by then so people can had back their keys. Otherwise people will never work again and will spend their days recieving rent allowance and dole at the states expense.

if mortgage rates reach 10% then many many more will be in negative equity and the depressed property sales of 2011 will look like boom time

3DataModem

I think we are looking at average of 6% in next 6 years, average of 8% in next 10 years.

Only solution (because mass default won't be tolerable) is that banks will be forced to allow people to pay less than the interest and add the unpaid amount to the capital, thus extending the term of their mortgage.

I'm going to keep my tracker on my gaff, but going to fix my RIL for 10yrs if I can get 6%.

mickman

interest rates will not hit 10% as if they do then they will cause a worldwide recession again and demand will collapse. 5.5 to 6% seems to be around the point where they cause problems

Gumbo

jester77 wrote: »

I'm not having a go at anyone here but did people not consider that interest rates would go up when they took out their mortgages? Or were they naive enough to believe that interest rates would always remain low. Whatever about not being able to predict a property crash, I thought it was common knowledge that interest rates were historically low and that once the EU economy started to pick up then so would interest rates, or maybe I am wrong here?

i'd say many thought about rates going up but that added together with pay cuts, is a double whamy

danbohan

mickman wrote: »

interest rates will not hit 10% as if they do then they will cause a worldwide recession again and demand will collapse. 5.5 to 6% seems to be around the point where they cause problems

mortgage rates are 7% in Australia , its having a boom ,. just because rising interest rates is something Ireland cant afford does not mean it wont happen

Bullseye1

Australia is having a boom? Not what I've been told by my Aussie mates. They are doing better than Europe but they wouldn't call it a boom. Just normal.

th3 s1aught3r

Permabear wrote: »

This post had been deleted.

What kind of fall in house prices could we see if interest rates go up to 8% for example ?

mickman

th3 s1aught3r wrote: »

What kind of fall in house prices could we see if interest rates go up to 8% for example ?

if variable rates go to 8% then you wont see a fall in house prices, you will see a total collapse in the irish property market.

danbohan

mickman wrote: »

if variable rates go to 8% then you wont see a fall in house prices, you will see a total collapse in the irish property market.

well hopefully they wont go back to 1982 levels anyway

Irish Mortgage Interest Rates since 1975
(The highest rate in each year is shown based on a monthly Average of “representative building societies”) from the Central Bank via the CSO

1975 11.25%
1976 12.5%
1977 13.95%
1978 14.15%
1979 14.15%
1980 14.15%
1981 16.25%
1982 16.25%
1983 13.0%
1984 11.75%
1985 13%
1986 12.5%
1987 12.5%
1988 9.25%
1989 11.4%
1990 12.37%
1991 11.95%
1992 13.99%
1993 13.99%
1994 7.49%
1995 7.00%
1996 6.75%
1997 6.90%
1998 5.85%
1999 5.60%
2000 6.09%
2001 6.09%
2002 4.70%
2003 4.20%
2004 3.49%
2005 3.65%
2006 4.86%
2007 5.46%

th3 s1aught3r

As someone posted earlier, why would people even want to stay here and pay off a mortgage for a house thats worth a fraction of what they paid with high interest on top, if they can go to another country and start again
I know its not an option for a lot of people but it will be for many imo

danbohan

th3 s1aught3r wrote: »

As someone posted earlier, why would people even want to stay here and pay off a mortgage for a house thats worth a fraction of what they paid with high interest on top, if they can go to another country and start again
I know its not an option for a lot of people but it will be for many imo

very true , i know if i was in that situation and was looking at paying for 30 years on a house that might never be worth what i paid for it i would do jingle mail,

ei.sdraob

Permabear wrote: »

This post had been deleted.

property is very overpriced there (+build like **** using timber like american homes) and last i checked 8% interest rates where the order of day, not like they lack space either, a classic bubble in the making, those builders leaving for Australia might find themselves in similar boat again

cleremy jarkson

danbohan wrote: »

....
1993 13.99%
1994 7.49%
....

That was some drop..sickner for anyone who took out a mortgage in 1993!

RichardAnd

th3 s1aught3r wrote: »

As someone posted earlier, why would people even want to stay here and pay off a mortgage for a house thats worth a fraction of what they paid with high interest on top, if they can go to another country and start again
I know its not an option for a lot of people but it will be for many imo

Can a person really just up sticks and cut loose? I mean, surely a debt would follow you to Auz?

amacca

cleremy jarkson wrote: »

That was some drop..sickner for anyone who took out a mortgage in 1993!

for the fixed raters at any rate!

presumably many on variable rates would have availed of some drop between these years (some more than others as its an average)

so happy I narrowly avoided taking out even the very modest mortgage I was considering


so nervous I'm going to be asked to make a "contribution" to supporting those that were not so lucky

wouldnt mind so much if I wasnt sure that a percentage of them wont be the kind of feckless eejits that jumped head first into buying+furnishing house+taking out a loan for suv+god knows what else on credit

sammy78

Well I'm not one of those feckless people who bought several houses they couldn't afford and i will be struggling if this continues. I bought a modest apartment on the affordable housing scheme, at a time when this was a good option (2 years ago). Before this i researched into renting and i would've done so had this been a cheaper option. I did take into account interest rates rising but not to the extent that people are now saying they will rise too. I am lucky in that i fixed just before xmas (thank god) at a 4.7 rate.
I did phone my bank (EBS)to get some "expert advice" as i wouldnt know much about the fluctuating habits of interest rates and i was a little concerned when i looked at the historical levels of interest rates and the guy in the bank told me not to worry about them too much as the interest rates were high back then as we didnt have the euro so they werent really comparable and that the highest that EBS interest rates had gone since the euro was introduced was 5.8!!!! What a crock of ****!!

th3 s1aught3r

sammy78 wrote: »

Well I'm not one of those feckless people who bought several houses they couldn't afford and i will be struggling if this continues. I bought a modest apartment on the affordable housing scheme, at a time when this was a good option (2 years ago). Before this i researched into renting and i would've done so had this been a cheaper option. I did take into account interest rates rising but not to the extent that people are now saying they will rise too. I am lucky in that i fixed just before xmas (thank god) at a 4.7 rate.
I did phone my bank (EBS)to get some "expert advice" as i wouldnt know much about the fluctuating habits of interest rates and i was a little concerned when i looked at the historical levels of interest rates and the guy in the bank told me not to worry about them too much as the interest rates were high back then as we didnt have the euro so they werent really comparable and that the highest that EBS interest rates had gone since the euro was introduced was 5.8!!!! What a crock of ****!!

Yeah be wary of any 'expert advice' you might get from a bank :eek:

OMD

ECB interest rates will go to 4-5%. That will push those on trackers to 5-6% which is not much off what they were paying when they took out their mortgages in the first place.

The people who are really screwed is those who will be first time buyers. They are the ones who will have to pay the 10% rates as banks increase their margins. I have made this point before but financing a house purchase is not becoming cheaper despite falling prices. Tax relief on rent paid is going as is mortgage interest relief. Beware of rents in urban areas especially Dublin rising so those who have not bought are the ones who may be screwed as much if not more than those who bought in the noughties.

Gumbo

OMD wrote: »

ECB interest rates will go to 4-5%. That will push those on trackers to 5-6% which is not much off what they were paying when they took out their mortgages in the first place.

but the big problem here is that alot of people (myself included) are on less wages now and in my case less now than the difference between what im paying now and what i was paying then.

th3 s1aught3r

OMD wrote: »

The people who are really screwed is those who will be first time buyers. .

Except that they will be paying a fraction of the house price that the people from a few years ago paid !

OMD

th3 s1aught3r wrote: »

Except that they will be paying a fraction of the house price that the people from a few years ago paid !

I did the figures before on a different thread. Unless prices fall a he'll of a lot more it will not be cheaper to finance it.

OMD

kceire wrote: »

but the big problem here is that alot of people (myself included) are on less wages now and in my case less now than the difference between what im paying now and what i was paying then.

Sorry I didn't mean to imply people wouldn't be affected, mainly where one or both people in a couple lost their jobs. But , for most, if they could afford the mortgage when they took it out then they will still be able to afford it when rates go up. I am only talking about those on trackers. Those on variable are very different

hinault

OMD is correct, ECB rates will increase but they will not increase to anywhere near the interest rates levels of the Irish Central Bank of the 1980'/90's (as charted by Dan).

The mean ECB rate historically is 3% to 4%.
The upper limit ECB rate is approx 6%.

In terms of interest rate increases, the ECB has a track record of increasing rates gradually rather than steeply.
Increases of 0.25% are the norm.
And rates increase over an extended period of time.

The genie in the bottle is that Irish banks recently took the unilateral decision to raise variable rates and set new fixed rates for new business.
Therefore any increase in ECB rates will be passed on the variable rate mortgage holders.

This spells trouble for variable mortgage holders and it spells trouble for those who are coming to the end of their fixed mortgage arrangements.

It seems that the banks that we own - we being the Irish citizen - are determined to push existing mortgage holders to be brink.
How this has been accepted by our politically classes is beyond me.
The unilateral decision by the banks will make a dreadful situation worse in my opinion.

danbohan

RichardAnd wrote: »

Can a person really just up sticks and cut loose? I mean, surely a debt would follow you to Auz?

probably , their might be a whole new industry their chasing irish people all over the outback to pay back money here , they are going be very busy i think

th3 s1aught3r

danbohan wrote: »

probably , their might be a whole new industry their chasing irish people all over the outback to pay back money here , they are going be very busy i think

I imagine it would be difficult though to get a mortgage in Australia or Canada if you had legged it on one in Ireland
I mean any credit search would throw that up surely ?

Amhran Nua

sollar wrote: »

I don't think they will go well over 10% but they may come close.

I reckon they'll top out at 8.5% for the average man on the street.

RichardAnd wrote: »

Can a person really just up sticks and cut loose? I mean, surely a debt would follow you to Auz?

Yes, it will.

OMD wrote: »

I did the figures before on a different thread. Unless prices fall a he'll of a lot more it will not be cheaper to finance it.

Yes, they will. Plus if you're cute you've been building up a nice deposit to reduce costs further.