ECB cuts rate to 1.25%

KELTICKNIGHTT · 04-11-2011 11:25PM

Think people are more interested in saving money ,so the more the ecb cuts interest rate,the better for people
The banks charge enough in charges etc.

johnnyskeleton · 04-11-2011 11:29PM

thetonynator wrote: »

Except they can loan out far more than they have on deposit, so really 0.3 or 0.4% would cover the interest for depositors.

This is a common misconception when people are given the basic theory on how fractional reserve banking works. It is sometimes explained that if I lend someone €10 and they know I only ever want €1 at a time, they can loan out the other €9 at interest, and if that person only ever wants €0.90 I can loan out the remaining €8.10. The original cash is a deposit, but each subsequent loan creates a new deposit and that is how the system ultimately lends several times the amount of cash it originally receives.

In simple terms, banks have to have assets (loans and cash to hand) and liabilities (deposits and other debts) in equal amounts. The central bank requires them to hold a certain percentage of cash relative to their deposits. So, basically for €100 in deposits they need to have €10 in cash and can loan up to €90.

Essentially, the bank can loan out far more than they have in cash (9 times in fact). But they have to have deposits to match each of these loans or it would not make sense. However, only a small percentage of this money has to be kept in physical cash.

woodoo · 05-11-2011 01:07AM

johnnyskeleton wrote: »

We know that the banks are losing money hand over fist. If they can reduce those losses somewhat by, for example, having higher interest rates, I see no problem with that. Every extra €1 the banks charge on loans is €1 less the taxpayer will have to pay the banks. In theory, anyway.

Do you have a tracker mortgage?

Head The Wall · 05-11-2011 03:10PM

average_runner wrote: »

Woohoo cut on my tracker.

Extra money to pay mortage off that bit quicker.

seamus wrote: »

Oh sweet. tracker mortgages.

Very quick move though by the new guy. He's obviously been formulating his own plans in the background for a while now and is eager to implement them.

n97 mini wrote: »

0.25% saves me €9 a month on the mortgage. Woohoo!

bamboozle wrote: »

great news, here's hoping for another drop in December!

There's nothing to be cheering about really, yes it's a cut in what you're paying but it's still an overpriced mortgage in the majority of cases.

Will any of ye save more than the people like myself who have been saving the last few years and will get a house at a lot cheaper price, I think not. I have something to be happy about

halkar · 05-11-2011 03:36PM

Head The Wall wrote: »

There's nothing to be cheering about really, yes it's a cut in what you're paying but it's still an overpriced mortgage in the majority of cases.

Will any of ye save more than the people like myself who have been saving the last few years and will get a house at a lot cheaper price, I think not. I have something to be happy about

Houses may be cheap now but getting mortgage is difficult. And you will never see interest rates anywhere near to trackers in your life time.

Head The Wall · 05-11-2011 04:02PM

Well considering I'll be looking for 50-70k over 10 years I reckon I'll be way better off in the long run. Six figure savings go a long way

bbsrs · 05-11-2011 06:31PM

Head The Wall wrote: »

Well considering I'll be looking for 50-70k over 10 years I reckon I'll be way better off in the long run. Six figure savings go a long way

And why do you fell the need to bore us with this information about your personal finances ?

SBWife · 05-11-2011 07:48PM

fliball123 wrote: »

This kinda uneducated stupid comment drives me mad...how is anyone else subsidising a person with a tracker...

For example..

If I have a tracker and I owe 100 Euros and I pay back this 100 Euros with what ever interest then its obvious that I am subsidising my own mortgage to the full amount and paying interest...Its not the tracker mortgagees fault you didnt avail of it at the time

Pot kettle black.

You are being subsidised if you have a tracker because the bank's cost of funds is higher than the interest rate you are being charged on your mortgage. The market for funds has changed in such a way that the margin above the ECB rate included in most tracker mortgage no longer covers the difference between the actual cost of funding for the banks and the ECB rate.

Head The Wall · 05-11-2011 08:07PM

bbsrs wrote: »

And why do you fell the need to bore us with this information about your personal finances ?

Oh, who's tetchy, mortgage holder? Other posters started it and I reckon its a pertinent point to be made in relation to the rate cuts and "savings" these posters have made.

The reality is the best savings a lot of people can make is to give up the overpriced houses they are and will struggle to pay for in the future. These rate cuts are only a bandaid solution as Ireland will not return to boom levels, the sooner people realise that the better.

Gumbo · 05-11-2011 10:39PM

Head The Wall wrote: »

Well considering I'll be looking for 50-70k over 10 years I reckon I'll be way better off in the long run. Six figure savings go a long way

higher interest rates at present, no trackers and count in the time it took you to save that money, there wont be much in the difference to be honest.

id like to see the calculations between the 2.

kippy · 05-11-2011 10:44PM

Any cut in interest rates is a benefit to the people effected by it so I ain't complaining however ultimately it's a sign of the absolute ****e the continent is in, small picture good, big picture terrible and that big picture will ultimately have more of an effect on every individual.

Head The Wall · 06-11-2011 05:40PM

kceire wrote: »

higher interest rates at present, no trackers and count in the time it took you to save that money, there wont be much in the difference to be honest.

id like to see the calculations between the 2.

You do know that you can earn interest on savings, it hasn't just been sitting in a current account it has been earning more for me.

Interest on a smaller sum will obviously be less as will being mortgage free in ten years as opposed to 30/40 years that was the norm here in the boom

There is also better value, house prices are down and still dropping.

Anyone that thinks I would have been better off buying during the boom as opposed to what I will be doing is intellectually challenged, no two ways about it.

bbsrs · 06-11-2011 08:37PM

Head The Wall wrote: »

You do know that you can earn interest on savings, it hasn't just been sitting in a current account it has been earning more for me.

Interest on a smaller sum will obviously be less as will being mortgage free in ten years as opposed to 30/40 years that was the norm here in the boom

There is also better value, house prices are down and still dropping.

Anyone that thinks I would have been better off buying during the boom as opposed to what I will be doing is intellectually challenged, no two ways about it.

Obviously you are better off buying now or in the next few years than in the boom .

fliball123 · 07-11-2011 11:40AM

Welease wrote: »

Thats not exactly true.. The banks don't borrow (or use deposits for) your total 100 at the interest rate on the day you take out the loan.. they will revolve cash through the system througout the effective term of your loan, and may in some cases be charged far more interest on your loan (or pay far more for cash on deposit) than they are able to charge you on a tracker based mortgage.

I am sorry but borrowing or other loans or deposits do not come into this equation..Its a simple transaction aggreement where you get your loan and once you pay back the full amount and interest no one else is subsidising your loan.....If the banks are too caught up with other areas such as over borrowing themselves then thats the banks fault not the people who have tracker mortgages...It is true

fliball123 · 07-11-2011 11:44AM

SBWife wrote: »

Pot kettle black.

You are being subsidised if you have a tracker because the bank's cost of funds is higher than the interest rate you are being charged on your mortgage. The market for funds has changed in such a way that the margin above the ECB rate included in most tracker mortgage no longer covers the difference between the actual cost of funding for the banks and the ECB rate.

Once again how does the banks day to day financials inpact on an individual contract between a mortgage holder and the bank...The cost of funding yada yada...As I say no one is subsidising my tracker last I seen I am still paying back the full amount with interest...so how is anyone else paying or subsiding me??? Its not my fault the banks fcuked up..So take it up with the bank not the people who are also paying back thier mortgages...All this sh1t of the markets..The markets are not paying my mortgage..people on variable non trackers I know its tough if the cuts are not passed on but dont blame the trackers direct your anger at the banks ..

bryaner · 07-11-2011 11:56AM

Head The Wall wrote: »

There's nothing to be cheering about really, yes it's a cut in what you're paying but it's still an overpriced mortgage in the majority of cases.

Will any of ye save more than the people like myself who have been saving the last few years and will get a house at a lot cheaper price, I think not. I have something to be happy about

I'd say you've loads of friends..:rolleyes:

SBWife · 07-11-2011 12:12PM

fliball123 wrote: »

Once again how does the banks day to day financials inpact on an individual contract between a mortgage holder and the bank...The cost of funding yada yada...As I say no one is subsidising my tracker last I seen I am still paying back the full amount with interest...so how is anyone else paying or subsiding me??? Its not my fault the banks fcuked up..So take it up with the bank not the people who are also paying back thier mortgages...All this sh1t of the markets..The markets are not paying my mortgage..people on variable non trackers I know its tough if the cuts are not passed on but dont blame the trackers direct your anger at the banks ..

YOU ARE BEING SUBSIDISED as the interest you are paying does not cover the cost of the funding.

I wish the charter on this board allowed one to report people for simple stupidity.

Welease · 07-11-2011 12:18PM

fliball123 wrote: »

I am sorry but borrowing or other loans or deposits do not come into this equation..Its a simple transaction aggreement where you get your loan and once you pay back the full amount and interest no one else is subsidising your loan.....If the banks are too caught up with other areas such as over borrowing themselves then thats the banks fault not the people who have tracker mortgages...It is true

But that's the point.. It's not a simple transaction.. because thats not how the financial system works..

Your (and my trackers) are costing the banks money.. It's a simple undisputable fact.. The reasons of who should accept the blame is a completely seperate and irrelevant issue..

http://www.moneybutler.ie/tracker-mortgages-costing-banks-money/

The shortfall in funding for tracker mortgages, will be bridged by higher variable rates, others charges, government funding etc.

woodoo · 07-11-2011 12:24PM

Welease wrote: »

The shortfall in funding for tracker mortgages, will be bridged by higher variable rates, others charges, government funding etc.

Exactly the reason the EBS has ramped up my variable mortgage over the last 2 years and the reason they don't seem to have passed the latest ECB rate cut on.

They are putting the squeeze on variable rate mortgage holders because they can't do the same to trackers.

fliball123 · 07-11-2011 12:53PM

SBWife wrote: »

YOU ARE BEING SUBSIDISED as the interest you are paying does not cover the cost of the funding.

I wish the charter on this board allowed one to report people for simple stupidity.

Sorry is it my fault or any other trackers mortgagees fault the bank didnt figure this in...the bare facts are I am paying the full amount with interest so your not paying any of my mortgage..and if as you say I am stupid well why didnt you take the offer up when it was going.???? Did you have a Forest Gump moment?? try to be constructive in your posts..and show me how anyone else is subsidising my mortgage when I am paying back the full amount and interest to the bank?

fliball123 · 07-11-2011 12:55PM

Welease wrote: »

But that's the point.. It's not a simple transaction.. because thats not how the financial system works..

Your (and my trackers) are costing the banks money.. It's a simple undisputable fact.. The reasons of who should accept the blame is a completely seperate and irrelevant issue..

http://www.moneybutler.ie/tracker-mortgages-costing-banks-money/

The shortfall in funding for tracker mortgages, will be bridged by higher variable rates, others charges, government funding etc.

But as someone else pointed out if there were no trackers ..the banks would be doing the same and regardless of how the financial system works..If I pay back what I got a lend of with interest (simple maths here) I am paying back more than I borrowed...so no one is subsidising my mortgage...whats being subsidised are decisions by the banks

Head The Wall · 07-11-2011 01:15PM

bryaner wrote: »

I'd say you've loads of friends..:rolleyes:

Incorrect and jealous, that makes me feel better

bamboozle · 07-11-2011 01:15PM

Head The Wall wrote: »

There's nothing to be cheering about really, yes it's a cut in what you're paying but it's still an overpriced mortgage in the majority of cases.

Will any of ye save more than the people like myself who have been saving the last few years and will get a house at a lot cheaper price, I think not. I have something to be happy about

eh yes there is, reduced ECB rate means more money in the pockets of Tracker Mortgage holders and variable mortgage holders for the banks who are passing the saving on.

the second point of your post is irrelevent to a drop in ECB rates (and quite petty)

bryaner · 07-11-2011 01:32PM

Head The Wall wrote: »

Incorrect and jealous, that makes me feel better

Jaysus I was right.

bryaner · 07-11-2011 01:36PM

bamboozle wrote: »

eh yes there is, reduced ECB rate means more money in the pockets of Tracker Mortgage holders and variable mortgage holders for the banks who are passing the saving on.

the second point of your post is irrelevent to a drop in ECB rates (and quite petty)

Well said.

SBWife · 07-11-2011 01:50PM

fliball123 wrote: »

Sorry is it my fault or any other trackers mortgagees fault the bank didnt figure this in...the bare facts are I am paying the full amount with interest so your not paying any of my mortgage..and if as you say I am stupid well why didnt you take the offer up when it was going.???? Did you have a Forest Gump moment?? try to be constructive in your posts..and show me how anyone else is subsidising my mortgage when I am paying back the full amount and interest to the bank?

No one said it was your fault. And where was it posted that I have a variable rate mortgage. Your mortgage is loss making and being subsidised, enjoy it, and keep up the payments you'd hate to give them any reason to move you off that rate.

fliball123 · 07-11-2011 01:56PM

SBWife wrote: »

No one said it was your fault. And where was it posted that I have a variable rate mortgage. Your mortgage is loss making and being subsidised, enjoy it, and keep up the payments you'd hate to give them any reason to move you off that rate.

Once again my mortgage is not being subsidised..what is being subsidised are the bad decisions that the banks made...

Welease · 07-11-2011 02:04PM

fliball123 wrote: »

Once again my mortgage is not being subsidised..what is being subsidised are the bad decisions that the banks made...

Those bad decisions (and various other factors) have caused trackers to be underfunded...ergo.. in order for banks to balance their books those funds need to be subsidised by other funds (i.e. variable mortgages)..

This really isn't that complicated.

woodoo · 07-11-2011 02:19PM

Welease wrote: »

Those bad decisions (and various other factors) have caused trackers to be underfunded...ergo.. in order for banks to balance their books those funds need to be subsidised by other funds (i.e. variable mortgages)..

This really isn't that complicated.

Filiball has no history of taking any new info on board. I think he formed some opinions about 5 years ago and its impossible to move him away from them no matter how much sense is put his way.

Welease · 07-11-2011 02:28PM

woodoo wrote: »

Filiball has no history of taking any new info on board. I think he formed some opinions about 5 years ago and its impossible to move him away from them no matter how much sense is put his way.

I am not going to start throwing personal insults around, they won't help to develop any discussion..

I was trying to point out that when they called other posters opinions "uneducated stupid" that he/she was in fact incorrect..

However it does appear to be a complete waste of time.. Somewhat shocking considering the amount of available information on the problems trackers are causing Irish banks..

ECB cuts rate to 1.25%

Comments