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.

I remember when interest rates were 12% but the thing to remember at that time mortgage lending was was very strict both on the amount lent and on the size of the deposit.

The type of variable rate mortgages we have in Ireland are really only suitable for a minority of people, we need mortgages with long term fixed interest rates of 10 or 20 years coupled with a strict ban on re mortgaging to cover other debts, nor should homes be used as a guarantor for any business loan.

A home is a home and should not be seen as a form of wealth.

eigrod

It really annoys me lately to hear on the National News announcments such as "Good news on the way for mortgage holders" in relation to a possible ECB rate cut (as I heard this morning).

For those of us on variable rate mortgages, it's not good news. It's good news for the institutions that we are with, as they will absorb the reduction, but nothing in it for the consumer.

moycullen14

eigrod wrote: »

It really annoys me lately to hear on the National News announcments such as "Good news on the way for mortgage holders" in relation to a possible ECB rate cut (as I heard this morning).

For those of us on variable rate mortgages, it's not good news. It's good news for the institutions that we are with, as they will absorb the reduction, but nothing in it for the consumer.

Fair point. In fact, every decrease in ECB rates means an increase in the SVR at the moment - to help 'subsidise' the loss making trackers. For SVR holders, increases in the ECB rate would be a good thing. Such are the times we live in.

On another note, I've started to listen to Radio 4 again as I cannot take another minute of the abortion referendum. Two interesting reports today and yesterday about mortgages and banks. The first was scathing on BOI's effort to extract itself from their tracker mortgages in the UK (deplorable behaviour) and the other on the danger of interest only mortgages. Critical, well-balanced pieces that we can only dream of from RTE (rant over).

gaius c

Farmer Pudsey wrote: »

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%.

It doesn't really matter what ECB rates are. Irish banks will stick the rates at whatever level want/need to and the market is so rotten that no foreign bank will come in.

gaius c

moycullen14 wrote: »

Fair point. In fact, every decrease in ECB rates means an increase in the SVR at the moment - to help 'subsidise' the loss making trackers. For SVR holders, increases in the ECB rate would be a good thing. Such are the times we live in.

On another note, I've started to listen to Radio 4 again as I cannot take another minute of the abortion referendum. Two interesting reports today and yesterday about mortgages and banks. The first was scathing on BOI's effort to extract itself from their tracker mortgages in the UK (deplorable behaviour) and the other on the danger of interest only mortgages. Critical, well-balanced pieces that we can only dream of from RTE (rant over).

It's not just the trackers. They are subsidising those not paying their mortgages too.

Galwayguy35

I can understand recent mortgage holders being annoyed at getting hammered with interest hikes but there is no reason to point the finger at tracker holders, during the boom most people had a choice to take a tracker but many chose not to.

Godge

Galwayguy35 wrote: »

I can understand recent mortgage holders being annoyed at getting hammered with interest hikes but there is no reason to point the finger at tracker holders, during the boom most people had a choice to take a tracker but many chose not to.

Very true, I am aware of someone who was moving house and was offered less money but a tracker from one bank and variable rate but more money from another. He took the extra money and the variable rate, spent the extra money on a car and is now in negative equity struggling to meet his repayments with a depreciated car. These are the type of people who expect the rest of us to bail them out.

recedite

moycullen14 wrote: »

Fair point. In fact, every decrease in ECB rates means an increase in the SVR at the moment - to help 'subsidise' the loss making trackers.

I received a letter from the EBS today informing me of a 0.25% increase in my standard variable mortgage, while on the radio I hear the ECB has at the same time reduced the base rate by 0.25% :mad:
That pushes the EBS rate up to 4.58% .... a staggering 916% mark-up on the ECB base rate.
But I don't believe the banks are "losing money" on trackers. If they hand in the mortgages to the ECB as collateral, they get money at 0.5%. Then they lend it out to the consumer at a 1.1% guaranteed surcharge to the base rate. If they can't profit from that, they are grossly inefficient and paying themselves too much. The bankers are bleeding this country dry.
As soon as this banking union directive comes into force I'll be on the plane to Germany to look for a loan at a reasonable rate.

eigrod

recedite wrote: »

I received a letter from the EBS today informing me of a 0.25% increase in my standard variable mortgage, while on the radio I hear the ECB has at the same time reduced the base rate by 0.25% :mad:

They knew it was coming. That's why they got in their first. A double win for the EBS.

eigrod

Galwayguy35 wrote: »

I can understand recent mortgage holders being annoyed at getting hammered with interest hikes but there is no reason to point the finger at tracker holders, during the boom most people had a choice to take a tracker but many chose not to.

I think most people are pointing the finger at the lending institutions, not the people on trackers.

gaius c

Galwayguy35 wrote: »

I can understand recent mortgage holders being annoyed at getting hammered with interest hikes but there is no reason to point the finger at tracker holders, during the boom most people had a choice to take a tracker but many chose not to.

As long as the tracker holders are keeping up their end of the contract, they are doing nothing wrong. It's the people on their own "personal trackers" - ECB rate goes up/down => I pay nothing anyway so who cares that are the real problem.

The arrears are the real problem. Rates are going up because the people still paying need to pay for themselves AND the people not paying at all.

recedite

If someone is in negative equity, I wouln't blame them at all if they stopped paying. If the lender has overestimated the amount of security in the property, then the lender will take a hit if they try to repossess and sell it. The lender has made a mistake in estimating the loan to value ratio. The lender should be honest and admit that all the other customers/borrowers are being made to pay for their own stupid mistakes. Its no way to run a business.
Anyone repaying a tracker is paying with interest, and is contributing to the lenders profits.

johnr1

gaius c wrote: »

As long as the tracker holders are keeping up their end of the contract, they are doing nothing wrong. It's the people on their own "personal trackers" - ECB rate goes up/down => I pay nothing anyway so who cares that are the real problem.

The arrears are the real problem. Rates are going up because the people still paying need to pay for themselves AND the people not paying at all.

I'd agree there is a good bit of the "fcuk em, I'm not paying cos my house is now worth fcuk all anyway" going on, but equally, there are people who are in arrears due to job loss/own business closure who currently can't pay but who will again along with all the surcharge interest accrued. I know this because I WAS one last year. I now have work again and have cleared my arrears and am ahead with my payments.

The first group need to be bankrupted and liquidated, but the second group need some time, albeit with strict limits. The distinction has to be made.

gaius c

johnr1 wrote: »

I'd agree there is a good bit of the "fcuk em, I'm not paying cos my house is now worth fcuk all anyway" going on, but equally, there are people who are in arrears due to job loss/own business closure who currently can't pay but who will again along with all the surcharge interest accrued. I know this because I WAS one last year. I now have work again and have cleared my arrears and am ahead with my payments.

The first group need to be bankrupted and liquidated, but the second group need some time, albeit with strict limits. The distinction has to be made.

That's fair enough and I don't have a huge problem with making such distinctions. Fair play to you btw.

recedite wrote: »

If someone is in negative equity, I wouln't blame them at all if they stopped paying. If the lender has overestimated the amount of security in the property, then the lender will take a hit if they try to repossess and sell it. The lender has made a mistake in estimating the loan to value ratio. The lender should be honest and admit that all the other customers/borrowers are being made to pay for their own stupid mistakes. Its no way to run a business.
Anyone repaying a tracker is paying with interest, and is contributing to the lenders profits.

Sounds lovely except for the bit that other people have to pay for them not paying and negative equity on it's own is no excuse for not repaying your mortgage.

barryfishir

Hi guys sorry to hijack the thread,just wondering what people think of increasing payments on a tracker mortgage now the rates are so low,is it an advantage we have 110,000 left to pay at monthly 580 euro at current rates.Thanks

Farmer Pudsey

barryfishir wrote: »

Hi guys sorry to hijack the thread,just wondering what people think of increasing payments on a tracker mortgage now the rates are so low,is it an advantage we have 110,000 left to pay at monthly 580 euro at current rates. Thanks

Are you comfortable with the payments. You will never get money this cheap again as in a variable at around 1% with the ECB rate. I would save the money in another account and leave it there if you have an issue in 2-3 years you could either pay money off it or use it to help make payments for a while. No point in paying off money that is costing less than 2% and having to borrow in a year or two at 5-6% maybe for a car loan or longer term for college fees if you have kids.

barryfishir

Hi thanks for advice yes we ok with repayments that why thinking to increase and pay off mortgage quicker.Understand what you saying about getting better interest in savings account and then proberly pay off lump sum in the future!!!

Farmer Pudsey

barryfishir wrote: »

Hi thanks for advice yes we ok with repayments that why thinking to increase and pay off mortgage quicker.Understand what you saying about getting better interest in savings account and then proberly pay off lump sum in the future!!!

It is not just getting a better interest rate in a saving account. You will never borrow money as cheap again. Do not leave your self in the situation where you need to borrow money for a car at 10% in 2-3 years time when you could have the price saved. You have a chance to create a situation where you will not need to borrow high interest money so why give money back to a bank that is costing you virtually nothing.

Also if in 3-5 years time you have a lump of money say if you saved 50/week for five years that would give you over 13K the banks might discount you for paying a lump sum off the loan.

Godge

Farmer Pudsey wrote: »

It is not just getting a better interest rate in a saving account. You will never borrow money as cheap again. Do not leave your self in the situation where you need to borrow money for a car at 10% in 2-3 years time when you could have the price saved. You have a chance to create a situation where you will not need to borrow high interest money so why give money back to a bank that is costing you virtually nothing.

Also if in 3-5 years time you have a lump of money say if you saved 50/week for five years that would give you over 13K the banks might discount you for paying a lump sum off the loan.

Or if interest rates go up and the tracker increases as a result giving additional payments, you will have a lump sum to pay off to reduce the payments back down.

barryfishir

Thanks for advice money proberly better off under the bed than in the banks pocket!!!!