Collapsing Euro and personal debt

Kumejima

Hi, hope this hasn't been done to death.

We know that our deposits are in danger of halving if, sorry, when the Euro comes crashing down. Any idea whats going to happen to loans, credit cards, overdrafts etc? Have one of each, nothing major thankfully but would be good to know if people should pay them down asap or hold out until they revert to punts/ stay in Euros.

Anyone know?

Krieg

I would also like to know this.

Would It be safe for an individual to move money into and english bank account?

Boskowski

If Anglo was too big to fail, the Euro certainly is.

Cabaal

Kumejima wrote: »

when the Euro comes crashing down.

You seem certain it will happen,
Now I'm sure like all systems it will eventually end (just look at the Romans), however if this happens the best thing to do with your money is buy physical goods.

Cans of beans and a bunker may be a place to start. :pac:

If the euro goes to hell even sterling will be affected and so will the English banks and even the UK gov realises this.

Morrisseeee

So.............what happens tracker mortgages that track the ECB rate ??

Fr Tod Umptious

Morrisseeee wrote: »

So.............what happens tracker mortgages that track the ECB rate ??

I was just about the ask the same question.

I have a very lucrative tracker (ECB + 0.9%) that is helping keep the wolf from the door at the moment.
I am worried that if the Euro was gone the mortgage company could then go and tare up the contact and I would have to go on a fixed or standard variable rate of their choosing.

Morrisseeee

Fr Tod Umptious wrote: »

I was just about the ask the same question.

I have a very lucrative tracker (ECB + 0.9%) that is helping keep the wolf from the door at the moment.
I am worried that if the Euro was gone the mortgage company could then go and tare up the contact and I would have to go on a fixed or standard variable rate of their choosing.

No one seems to know Fr Tod Umptious

NIMAN

Would the tracker mortgage not move over to an Irish Central Bank rate of some description, as we would be using the Punt again?

rameire

all our mortgage rates will revert to rates around 15-19%

NIMAN

rameire wrote: »

all our mortgage rates will revert to rates around 15-19%

... and you base this on what exactly?

Or are you just joining in on the doom that the whole world loves these days?

rameire

im basing it on absolutely nothing
like every other person, with the same questions and answers.

if it ever happens nobody will know the pure outcome until after it happens.
so all these questions are pointless as all the answers are pure guesses.

and for the record, i hate all the crap with the doom and gloom, im getting on with my life, its only short, i only have another 60 or so years to go, so im going to try and enjoy it and deal with whatever comes.
so im heading to after hours, ylyl thread.

Morrisseeee

rameire wrote: »

and for the record, i hate all the crap with the doom and gloom, im getting on with my life, its only short, i only have another 60 or so years to go, so im going to try and enjoy it and deal with whatever comes.
so im heading to after hours, ylyl thread.

Good idea rameire, and I agree with you, but.............you do need to keep your ear to the ground every so often and gather as much info as you can especially when it comes to a little matter such as a 'mortgage'. By keeping up with the latest info I heard about the trackers & loan-to-value and I'm glad I followed up on it, because my bank definitely wouldn't have.

NIMAN wrote: »

Would the tracker mortgage not move over to an Irish Central Bank rate of some description, as we would be using the Punt again?

If it moves to another rate, then would a new contract have to be drawn up !! and where does that leave important info like: solicitor fees, old loan-to-value rates etc ?
Now these Qs might seem like the original Q, "I dunno what a tracker mortgage is?" so please forgive my ignorance.

Lisa2011

If Ireland reverted back to the punt all savings in banks would be worthless. the well known russian economist constantine says that due to capital controls and devaluation along with wealth taxes savings would be wiped out.

I dont have a savings account yet but I was considering opening one but will think again.What about the current account. Would that be at risk aswell.

seamus

Just to break it down very simply, imagine that Ireland pulled out of the euro and back to the punt.

A 1:1 switch, 1 euro == 1 punt. The actual rate is irrelevant, the economics are the same.

The banks do the same, your €200,000 mortgage now becomes a £200,000 mortgage, so too all your loans, overdrafts, credit cards, your salary, etc.

So theoretically nothing changes for you, the figures are identical, the symbol has changed.

Now imagine that once we disconnect, the value of the punt drops, as it would. By 40%, as is possible. On the face of it, nothing changes for you, right? You're paying in punts, you still draw the same salary, pay the same punts for bread, etc. It's an issue for you if you're ordering stuff online in euros, but outside of that you're OK, right?

Wrong, unfortunately. The problem occurs higher up the chain. Although you are paying your mortgage to the bank in punts, the bank is paying your mortgage to another bank, in euros. From the bank's point of view, you are paying them 40% less for your mortgage than you were the day before. That is, where on Monday they were receiving €1 from you and giving that to another bank further up the chain, they are now receiving 60c from you, but the bank further up the chain is looking for €1.
Your bank isn't going to cover the other 40c, and the bank further up the chain isn't going to voluntarily reduce the debt by 40c.

So you are the one who gets squeezed for more money, by the bank increasing your interest rate, probably into the teens.

What if you're on a tracker? Well considering that Ireland would be not part of the eurozone anymore, ECB rates would be irrelevant for a mortgage in punts.
There would be 3 possible options for tracker holders in this scenario:

1. Hold onto your tracker and keep repaying your mortgage in euros.
2. Change to a standard variable and start repaying in punts.
3. (Possible, if the regulator decided) Change to a tracker which tracked ICB rates rather than ECB rates.

Option 1 would leave a person at the mercy of daily changes in the currency markets. If the euro strengthens, your mortgage repayments instantly rise. If the euro weakens, they instantly drop. There's also an obvious flaw in that your home will still be valued in punts. So, regardless of how much you've repayed the bank in euros, if/when you sell the property you will get punts for it, not euros.

Option 2 would mean much higher interest rates, but much more stability when it comes to your repayments. You wouldn't see your repayments change on a daily basis and the actual cost of your mortgage would be rationalised over its lifetime.

Option 3 probably wouldn't be a whole lot better than Option 2, just might be marginally more stable. ICB rates would probably be in the teens too, since the Government aren't exactly finding it easy to borrow money either.

In the event of a collapse of the euro, the above would hold true. Just replace "euro" with whatever currency your bank has borrowed your mortgage in (probably USD, GBP or DM).

Lisa2011

How would €200k convert to £200k?

When you convert the 200k euro to Irish pounds its around £157,512

KerranJast

Lisa2011 wrote: »

How would €200k convert to £200k?

When you convert the 200k euro to Irish pounds its around £157,512

That exchange rate doesn't exist anymore. The Government would have to value the new currency at some value against the Euro (Deutsch Euro or whatever remains) so 1:1 is best starting point. It would inevitably collapse in value though to much further below the Punts last value against Euro.

JaneyMacker

Morrisseeee wrote: »

So.............what happens tracker mortgages that track the ECB rate ??

There are different scenarios for the demise of the euro.
In most of them there will most likely still be an ECB.
If your contract says your tracker tracks the ECB rate then it will still track it.

seamus

Lisa2011 wrote: »

How would €200k convert to £200k?

When you convert the 200k euro to Irish pounds its around £157,512

Using the previous rate, yeah.

As I say, the conversion rate is largely irrelevant, the issue is still the same.

turbodiesel

A friend has about 20k in cash (remainder of redundancy) sitting on deposit, still owes about 100k on mortgage. We were discussing the possible crash of the euro and i was saying to invest in something like rare stamps in a capital protected thingy, It's gbp based so if he throws in 15k gbp it should be more stable than eur and it's also a fixed asset (or there would be stamps/signatures in a portfolio i imagine.....) http://www.stanleygibbons.com/stanleygibbons/view/content/sg_invest_right4u

Vego

I like the Idea of the euro collapses no ECB so no interest rate trackers are void and we owe nothing ......What do you think

call it an act of god

KerranJast

Vego wrote: »

I like the Idea of the euro collapses no ECB so no interest rate trackers are void and we owe nothing ......What do you think

call it an act of god

Interest rates are *based* off ECB rate. If the ECB goes, the rates will stay the same to start with.

seamus

If anyone has a significant amount of savings in EUR and they're properly concerned/convinced that the euro will collapse or that Ireland will leave the euro, then they should move their money into a foreign currency now.
It will be too late to move your money after any major announcements or issues occur.

If you have, for example, €20k, you move it to USD and the euro value drops by 40%, then you can bring that money back in and you now have €33k. You'll probably pay some tax on the gains, but it's a good chunk of cash that can be offset against a mortgage.

Vego

I could live with a 2% rate for the net 20 years

seamus

From what I recall from a discussion on boards recently enough, virtually every tracker contract includes a get-out clause which allows the bank to move the person onto a standard variable rate in the event of significant economic upheaval or something along those lines. A collapse in the euro would probably fall into that

Lisa2011

seamus wrote: »

If anyone has a significant amount of savings in EUR and they're properly concerned/convinced that the euro will collapse or that Ireland will leave the euro, then they should move their money into a foreign currency now.
It will be too late to move your money after any major announcements or issues occur.

If you have, for example, €20k, you move it to USD and the euro value drops by 40%, then you can bring that money back in and you now have €33k. You'll probably pay some tax on the gains, but it's a good chunk of cash that can be offset against a mortgage.

What about money in current accounts? Is that safe

JaneyMacker

Best place for your money is invested in a dollar or stg denominated fund. Diversify your investment into many different funds.
Rabo funds would be one option. You'll take a hit in and out too.

Euro collapses. We get new punts. punt plummets. Every other currency and stock market plummets.
Eventually all other currencies and markets start to recover.
They recover much faster than the new punt which is only going down.
You will take a hit but not as big a one as leaving your money in the bank in Ireland

seamus

Your money is safe, it'll always be safe, but it would be converted to punts. Locally, your money would still be "worth" the same amount, it's only "worth" less if you try to buy foreign goods.

However, the other issue on top of the mortgage one is that imported goods would become extremely expensive, at least for a time because the importers are paying in euros. So if the punt dropped by 40%, your €10,000 car would now cost nearly £17,000 to buy. Domestic goods like milk and bread wouldn't change much, but imported stuff would skyrocket.

However, as we all know most imported goods are naturally more expensive either because they're priced for the eurozone or because they have a paddy tax slapped onto them. So in the medium-term multinational companies would recognise that their sales have collapsed in Ireland and would reprice their goods more sensibly for the Irish market.

HicksLennon

Somebody talking sense, well done

Lisa2011

Ok your money is safe but if you dont want to have savings wiped out because of a devaluation you open a foreign currency in lets say dollars?

I have a current account with BOI. Should I leave my money there but move a savings account if I have one?

Lisa2011

I would love to know if the government are planning so they can be prepared for a possible euro collpase.

adox

Interesting developements across the water:

http://news.sky.com/home/business/article/16121121