Mortgage interest rates then, now, future...

johnr1

I am currently on a tracker with a rate of 1.91%, taken out in 2005. This is as far as I can see, the year in which the lowest rates ever were given, and right now is the time of the lowest ECB rate ever.
This means that right now is the lowest my payment will ever be, assuming that the ECB rate isn't cut any more, - and there isn't really much more room for them to cut it. No?

In the early eighties, mortgage interest rates hit 16.5% here, and although that was pre-euro, it wouldn't be beyond imagination that they could soar again when Germany inevitably recovers and fear of inflation,-real or imagined, takes over.

My question is this; how high should we expect them to go,- 8, 10, more?

I have looked at the sums on ten percent occuring in approx five years time, and I think I could manage interest only, -just about. Many others must be in the same situation, and this would lead to a second round of mortgage default which would dwarf the current situation here. Correct or no ?

Answers on a postcard....:pac:

shedweller

It happened before so it will happen again.
I'm no expert, obviously, but those with the money need more .

ambid

johnr1 wrote: »

I am currently on a tracker with a rate of 1.91%, taken out in 2005. This is as far as I can see, the year in which the lowest rates ever were given, and right now is the time of the lowest ECB rate ever.
This means that right now is the lowest my payment will ever be, assuming that the ECB rate isn't cut any more, - and there isn't really much more room for them to cut it. No?

In the early eighties, mortgage interest rates hit 16.5% here, and although that was pre-euro, it wouldn't be beyond imagination that they could soar again when Germany inevitably recovers and fear of inflation,-real or imagined, takes over.

My question is this; how high should we expect them to go,- 8, 10, more?

I have looked at the sums on ten percent occuring in approx five years time, and I think I could manage interest only, -just about. Many others must be in the same situation, and this would lead to a second round of mortgage default which would dwarf the current situation here. Correct or no ?

Answers on a postcard....:pac:

Long term interest rates have averaged about 4% - 5%. That would be a good estimate of a stable level to which they might return if the European economy recovers. There is little sign of that in the foreseeable future though.

hfallada

Most economists believe that the ECB will cut the rates to ,5% in may as inflation is low and most European economies are still very weak. There was an article on the wall street journal Website wsj.com hinting angela merkel wants two ECB rates. One for Germany as the economy is over heating on the cheap rates and possible the start of a property bubble. Then a lower one for the rest of Europe with the low growth.

So you can expect possible low rates for a low period as there is little or no growth in most european countries and the rates will likely remain low. But I can imagine people on variable mortgages to get higher rates to get the banks return to profitablity.

spank_inferno

hfallada wrote: »

Most economists believe that the ECB will cut the rates to ,5%

cool.

My tracker is 1.1% over ECB rate.

Scortho

Long term they will rise.
I can't see Europe being in low growth over the next twenty years! Yes some year will be but we will see growth, some of which will be significant.
Short term they'll fall or stay the same.

Can Germany have a different rate than the rest of Eurozone? And what stops german banks borrowing elsewhere. Or what stops the irish gov pushing for an increase in rates for Ireland to solve the banks tracker problems?
Also rates rose significantly in 2006-2008. Could the irish gov. Not have asked for a different rate for irish banks then.
Or is it just because its the all important Germany?

StillWaters

Well not just Germany, but 'The Core'. You're right, back when the periphery was overheating a higher interest rate would have suited us better. But I really can't see a two tier ECB emerging. For one thing, we would lose deposits to German banks!

johnr1

I'd blame the introduction of the euro, and the subsequent low interest rates for a large part of the property bubble tbh. We had an economy which was growing sustainably and needed higher rates in the early naughties to control it rather than what we got, which was akin to pouring petrol on a nice campfire, and in the ensuing inferno, everything got burnt.
Germany was stagnating at the time though, as a result of the cost of unification, and they got exactly what they wanted - low rates to stimulate growth/investment.

I think it is likely that they will get what they want again, and we'll get whatever suits them because we don't really matter in the big picture.

How would a two tier interest rate work? Surely this would lead to German investors borrowing abroad which wouldn't be good for them?

srsly78

johnr1 wrote: »

I'd blame the introduction of the euro, and the subsequent low interest rates for a large part of the property bubble tbh. We had an economy which was growing sustainably and needed higher rates in the early naughties to control it rather than what we got, which was akin to pouring petrol on a nice campfire, and in the ensuing inferno, everything got burnt.
Germany was stagnating at the time though, as a result of the cost of unification, and they got exactly what they wanted - low rates to stimulate growth/investment.

I think it is likely that they will get what they want again, and we'll get whatever suits them because we don't really matter in the big picture.

How would a two tier interest rate work? Surely this would lead to German investors borrowing abroad which wouldn't be good for them?

Nonsense, our government had other options available to disincentivise the bubble. They chose not to exercise these options, but rather to add fuel to the fire.

One example of a disincentive would be a PROPERTY TAX - which we now have but it's too late. Our government did the opposite, they gave huge tax breaks for property!

johnr1

srsly78 wrote: »

Nonsense, our government had other options available to disincentivise the bubble. They chose not to exercise these options, but rather to add fuel to the fire.

One example of a disincentive would be a PROPERTY TAX - which we now have but it's too late. Our government did the opposite, they gave huge tax breaks for property!

Yes, you're right the govt had options, but do you believe that liw interest rates had nothing at all to do with the property boom and bust which affected more than Ireland? If so, you need to study your subject a bit more closely I think.

Eta: Cheap credit is widely recognised as one of the causes of high government and personal indebtedness which is a feature of many western countries and a contributing factor in the financial mess of Europe and the USA.

srsly78

My point was that the low interest rates could have been counterbalanced by disincentive policies. The government did the opposite.

Cheap credit is good when it gets invested in productive things. It is not good when it gets used to build wasteful things like what turned out to be ghost estates.

johnr1

srsly78 wrote: »

My point was that the low interest rates could have been counterbalanced by disincentive policies. The government did the opposite.

Cheap credit is good when it gets invested in productive things. It is not good when it gets used to build wasteful things like what turned out to be ghost estates.

Yes, or indeed used to fund holidays, cars and lifestyles people couldn't afford.

More bad than good IMO.

srsly78

Your view is extremely simplistic. You can't just say "cheap credit is bad", cheap credit is also one of the drivers of economic growth. Sustainable growth is the tricky bit, not the fake growth we had.

If noone could get a loan there would also be much complaining!

johnr1

srsly78 wrote: »

Your view is extremely simplistic. You can't just say "cheap credit is bad", cheap credit is also one of the drivers of economic growth. Sustainable growth is the tricky bit, not the fake growth we had.

If noone could get a loan there would also be much complaining!

Which brings us right around to where I began this side discussion,- we had decent rates of growth and investment before the era of uber-cheap credit. We didn't need it.

belcampprisoner

they are trying to attack the tracker,so don't expect to be sitting on it forever

http://www.independent.ie/business/personal-finance/property-mortgages/dont-let-banks-take-trackers-off-borrowers-legal-group-29188721.html

srsly78

johnr1 wrote: »

Which brings us right around to where I began this side discussion,- we had decent rates of growth and investment before the era of uber-cheap credit. We didn't need it.

Eh no we didn't. We were using the euro behind the scenes for several years before the paper currency got introduced.

http://en.wikipedia.org/wiki/European_Exchange_Rate_Mechanism

johnr1

srsly78 wrote: »

Eh no we didn't. We were using the euro behind the scenes for several years before the paper currency got introduced.

http://en.wikipedia.org/wiki/European_Exchange_Rate_Mechanism

Yes I know.

We did not however have the same INTEREST rates until the ECB took over post 1998.


The point that I made is valid. Cheap credit was not what we needed from the late nineties or early noughties onward. However it was what we got due to being tied to German needs.

Arguing the minute details won't make this untrue.

johnr1

belcampprisoner wrote: »

they are trying to attack the tracker,so don't expect to be sitting on it forever

http://www.independent.ie/business/personal-finance/property-mortgages/dont-let-banks-take-trackers-off-borrowers-legal-group-29188721.html

While I can pay my mortgage, they can fcuk right off.

Obviously if a bank are to be expected to write off a portion of a loan, then to continue to offer the benificary of that write off a rate on which they the bank lose money would be stupid of them, and shouldn't happen.

Galwayguy35

belcampprisoner wrote: »

they are trying to attack the tracker,so don't expect to be sitting on it forever

http://www.independent.ie/business/personal-finance/property-mortgages/dont-let-banks-take-trackers-off-borrowers-legal-group-29188721.html

They might have some grounds for borrowers who are in trouble but for people who are keeping up to date on their trackers I don't see how the banks could touch them.

I'm with BOI and they tried to get me to change but I nearly laughed down the phone when she told me what they were offering.

gaius c

Wouldn't pay too much attention to the ECB rate nowadays. Irish banks' variable rates will be much, much higher for the foreseeable future as they have to cover the losses on arrears and also the trackers. If they ever do sort out the block on repossessions, I can see foreign banks coming back in and offering sweet deals to people on low LTV's and basically taking the best customers from the Irish banks leaving them with sub-prime ****e.

shaileshbk

Hi Guys,

Quick question on the tracker mortgages, is it not illegal/unfair that buyers (new applicants) in other countries still have option to take tracker mortgage and in Ireland we don't?

gaius c

shaileshbk wrote: »

Hi Guys,

Quick question on the tracker mortgages, is it not illegal/unfair that buyers (new applicants) in other countries still have option to take tracker mortgage and in Ireland we don't?

It's definitely not illegal and as for unfair, well life isn't very fair at the best of times anyway.

Chris_5339762

What do we all think of this offering from TSB?

For those borrowing at higher loan to value ratios, the variable rate will increase through various stages.

The rate are as follows:

less than 50% - 3.95%

less than 60% - 4.05%

less than 70% - 4.15%

less than 80% - 4.20%

less than 90% - 4.45%

http://www.rte.ie/news/business/2013/0429/387220-permanent-tsb-mortgages/

Seems like a fair idea to me and when my fixed rate is over next year I might be tempted.

ninty9er

shaileshbk wrote: »

Hi Guys,

Quick question on the tracker mortgages, is it not illegal/unfair that buyers (new applicants) in other countries still have option to take tracker mortgage and in Ireland we don't?

You could always get a tracker from a bank in another country once the EU Parliament sends the single banking market directive later this year.

Also, would 16-18% not have been at the low end of mortgage interest rates in the 80s

gaius c

Chris_5339762 wrote: »

What do we all think of this offering from TSB?



http://www.rte.ie/news/business/2013/0429/387220-permanent-tsb-mortgages/

Seems like a fair idea to me and when my fixed rate is over next year I might be tempted.

Great idea and excellent to people to start saving big deposits and looking for value when buying. Banks want low risk so it's only fair that they reward customers who bring that kind of business to them.

Somebody mentioned foreign banks a few posts back:
1. What bank would lend to a market where mortgage repayments are voluntary?
2. If they did, they would certainly add a hefty premium onto their "home" rates in order to cover the increased risk.
3. If an "outside" bank does come in, the business they will be looking for will be low-LTV loans and they'll be able to undercut the Irish banks who are nursing their losses on trackers and arrears. In other words, they'll take all the good customers (new business + re-mortgaging) and leave the Irish banks with effectively sub-prime loans.

Morrisseeee

ninty9er wrote: »

You could always get a tracker from a bank in another country

Interesting, what implications would that have for the Irish banks, if alot of people went abroad for value in their mortgage ?!

jester77

Chris_5339762 wrote: »

What do we all think of this offering from TSB?



http://www.rte.ie/news/business/2013/0429/387220-permanent-tsb-mortgages/

Seems like a fair idea to me and when my fixed rate is over next year I might be tempted.

Those %'s look extremely high for a variable rate. You can get < 3% fixed for 20 years on 80% loan to value where I am right now.

gaius c

jester77 wrote: »

Those %'s look extremely high for a variable rate. You can get < 3% fixed for 20 years on 80% loan to value where I am right now.

Aye but you're not in a country with a zombie banking system, are you?

Joe 90

I would be inclined to the view that when Germany needs higher rates the Eurozone will get higher rates.

I am also inclined to the view that at some point interest rates will have to reflect the true cost of money. The basic interest rate for a currency would need to reflect the true inflation rate, a bit for risk and a bit for profit. Then in would need a multiplier to cover any tax taken off the gross. The artificially low rates of today are just a tax on savings.

I too can remember paying the high rates of the '90s. I don't think though that they were above the low teens here in the UK. Low teens or not, it was pretty horrible.

Farmer Pudsey

It is hard to see intrest rates rising in the next two years. In general it may be 2016 before the EU rate hits 2% again. You would expect that the EU economy would have recovered somewhat by then and that there might be a bit of inflation.

It may well be nearly 2020 before the EU economy could sustain intrest rates of 4%.

murphaph

johnr1 wrote: »

Yes I know.

We did not however have the same INTEREST rates until the ECB took over post 1998.


The point that I made is valid. Cheap credit was not what we needed from the late nineties or early noughties onward. However it was what we got due to being tied to German needs.

Arguing the minute details won't make this untrue.

We misused the cheap credit. We got out of the gutter through US FDI for the most part in the 90's. We did need the cheap credit to then develop indigenous industry, but we used it to build ghost estates and whatnot. We could have benefited massively from the cheap credit, had we as a nation wanted more than a 3 bed semi at any price.