AIB SRV heading to 5%

kennyb3

Very surprised there is no thread about this.

http://www.independent.ie/business/personal-finance/property-mortgages/mortgage-interest-rise-could-affect-up-to-300000-29082118.html

I'd expect BOI to follow as they always do.

I can't imagine many people are ready for the 6%+ rates i'm expecting in 3 years plus.

A 5% rate when the ECB rate is just 0.75% is scary.

There'll be a lot of homeowners praying the eurozone recovers very slowly and steadily.

It's interesting that AIB moved on this first, and there was no objection from the government (not a peep so far). I'd have put money on it being BOI and AIB sheepishly following so that BOI would take the flack.

quad_red

kennyb3 wrote: »

Very surprised there is no thread about this.

http://www.independent.ie/business/personal-finance/property-mortgages/mortgage-interest-rise-could-affect-up-to-300000-29082118.html

I'd expect BOI to follow as they always do.

I can't imagine many people are ready for the 6%+ rates i'm expecting in 3 years plus.

A 5% rate when the ECB rate is just 0.75% is scary.

There'll be a lot of homeowners praying the eurozone recovers very slowly and steadily.

At 8 per cent interest rates, myself and the mrs (both full time employed professionals) could probably just about afford a three bed in Finglas or Crumlin after creche fees and taxes.

kennyb3 wrote: »

It's interesting that AIB moved on this first, and there was no objection from the government (not a peep so far). I'd have put money on it being BOI and AIB sheepishly following so that BOI would take the flack.

Presumably the Government are following the line that the only way they'll offload their shares in the banks is if the banks are being run to return them to profitability. Whether this makes sense on a macro economic scale, increasing mortgage rates increases income. They can't do it with the majority of their mortgage books which are trackers so they're going to hammer variables.

This has always been on the cards.

And it puts into perspective the 'value' now offered by a 'bargain' house in 2013.

kennyb3

quad_red wrote: »

At 8 per cent interest rates, myself and the mrs (both full time employed professionals) could probably just about afford a three bed in Finglas or Crumlin after creche fees and taxes.



Presumably the Government are following the line that the only way they'll offload their shares in the banks is if the banks are being run to return them to profitability. Whether this makes sense on a macro economic scale, increasing mortgage rates increases income. They can't do it with the majority of their mortgage books which are trackers so they're going to hammer variables.

This has always been on the cards.

And it puts into perspective the 'value' now offered by a 'bargain' house in 2013.

Exactly, it's going to be interesting times with the trade off of how much extra income they can generate as against how many others on SRV's they push over the bread line and into arrears.

D3PO

I didnt really see this as big news tbh so didnt bother posting about it. We all knew SVR's were only going one way and even with the latest increase AIB's SVR is low in comparrison to the other mortgage lenders in this country.

re pushing people into arrears im pretty sure there will be some level of discression regarding the increase on persons who cannot pay, however if not you ahve to say that the home owners can only blame themselves.

SVR's have been on the rise for quite a while if somebody was in a position where they were worrying about rate increases pushing them over the edge they should have locked into fixed rates. If they gambled then it was irresponsible on their behalfs.

kennyb3

D3PO wrote: »

I didnt really see this as big news tbh so didnt bother posting about it. We all knew SVR's were only going one way and even with the latest increase AIB's SVR is low in comparrison to the other mortgage lenders in this country.

True but a 0.7% move in one fell swoop is a very significant change. I just wanted to highlight it again as it's probably the single biggest factor in terms of affording a house (price being a given obviously)

I just think people need to start preparing themselves for 6% and 7% rates. Having spoken to people in the process of buying at present they are oblivious to this.

D3PO wrote: »

re pushing people into arrears im pretty sure there will be some level of discression regarding the increase on persons who cannot pay, however if not you ahve to say that the home owners can only blame themselves.

SVR's have been on the rise for quite a while if somebody was in a position where they were worrying about rate increases pushing them over the edge they should have locked into fixed rates. If they gambled then it was irresponsible on their behalfs.

I wonder how many on the 2012 buying thread locked themselves into a fixed rate? Be interesting to know.

As i said I still think it really affects those who bought for high prices on the way down (2008 - 2010), when trackers were gone and interest rates were falling. ouch!

ted1

So there going to let people off who are in arrears and make the people who are paying there's pay for the people in arrears.
Think I may stop paying

D3PO

kennyb3 wrote: »

True but a 0.7% move in one fell swoop is a very significant change. I just wanted to highlight it again as it's probably the single biggest factor in terms of affording a house (price being a given obviously)
!

they arent increasing by 0.7% in one foul swoop. you need to reread the original article.

kennyb3

D3PO wrote: »

they arent increasing by 0.7% in one foul swoop. you need to reread the original article.

No you do;

''He said banks were anxious to see the average variable rate go from around 4.3pc to 5pc''.

"It's not going to be a whole series of raises."

D3PO

kennyb3 wrote: »

No you do;

''He said banks were anxious to see the average variable rate go from around 4.3pc to 5pc''.

"It's not going to be a whole series of raises."

Since when does Micheal Dowling WHO ? of Abacus Finance have any creedence in telling the press what AIB are going to do with their rates.

AIB never said they were going to increase their rate by 0.7% Mr Duffy has indicated they are likely to increase their rates but prefaced that by saying there wont be a series of raises as some kind of assurance to their customers.

kennyb3

okay i'll make it clearer;

AIB boss David Duffy said: "It's not going to be a whole series of raises."

That's what the article clearly states.

It's also what i've heard from internal sources.

D3PO

kennyb3 wrote: »

okay i'll make it clearer;

AIB boss David Duffy said: "It's not going to be a whole series of raises."

That's what the article clearly states.

It's also what i've heard from internal sources.

I will believe it when I see it. I love these internal sources, gossip mongers who for the most part arent sernior enough to have a clue whats going to happen.

FWIW I know senior managers in AIB who have said they havent heard any decision on rate increases.


its not going to be a whole series of raises translates to yes we will be increasing variable rates but for those on a variable dont panic this isnt the start of a raft of increases.

roro2

My guess is that it will be one increase of 0.5%. With David Duffy not giving any indication of the size of the increase, the 0.7% is just a plug figure from some mortgage broker to add to a nice round 5% so the Indo can come out with front page headlines like "That could add €1,000 a year to annual repayments", when really there has been no indication of what the increase will be.

D3PO

roro2 wrote: »

My guess is that it will be one increase of 0.5%. With David Duffy not giving any indication of the size of the increase, the 0.7% is just a plug figure from some mortgage broker to add to a nice round 5% so the Indo can come out with front page headlines like "That could add €1,000 a year to annual repayments", when really there has been no indication of what the increase will be.

thats precisely my read on the situation aswell.

quad_red

What do the heads in here think people should be stress testing themselves at?

kennyb3

quad_red wrote: »

What do the heads in here think people should be stress testing themselves at?

Personally i'll be stress testing myself up to about 8%, but that's just me.

D3PO

quad_red wrote: »

What do the heads in here think people should be stress testing themselves at?

id be stress testing at 8.5 to 9%

mel.b

With what I have been approved for if SVR reached 10% :eek: I'd be paying 40% of my take home pay fortnightly (providing no significant and major cuts with Croke Park II which can't be certain). While it wouldn't be nice I'm currently saving more, so I know i could manage.

killers1

Rather than just using a % on a stress test of the mortgage repayment I'd be inclined to look at it a slightly different way. Add up your current rent payment + average monthly savings contribution from income alone over the past 12 months. The greater the difference between that & your proposed mortgage repayment the more comfortable you will be in dealing with rate increases. It doesn't always boil down to what your salary is, more important is how you manage your money. I've seen people who earn €100k really struggle with a 0.5% rate increase and I've seen people earning €50k with the same size mortgage who could cope comfortably with a doubling in interest rates.

D3PO

mel.b wrote: »

With what I have been approved for if SVR reached 10% :eek: I'd be paying 40% of my take home pay fortnightly (providing no significant and major cuts with Croke Park II which can't be certain). While it wouldn't be nice I'm currently saving more, so I know i could manage.

thats the key to stress testing IMO. Work out the worst case, save the difference and have that buffer in rainy day money and be conditioned to live off that amount. That said 30% is about 10% more than id be comfortable with but at least your taking a relatively pragmatic approach to things.

StillWaters

D3PO wrote: »

thats the key to stress testing IMO. Work out the worst case, save the difference and have that buffer in rainy day money and be conditioned to live off that amount. That said 30% is about 10% more than id be comfortable with but at least your taking a relatively pragmatic approach to things.

If SVR gets to 10%, we would be looking at serious inflationary pressure, so your wages would probably have risen too.

Can't see it happening again for the next 10 years anyway.

Villa05

StillWaters wrote: »

If SVR gets to 10%, we would be looking at serious inflationary pressure, so your wages would probably have risen too.

Can't see it happening again for the next 10 years anyway.

If the ECB rate is at an emergency level, common sense would dictate that anyone going for a mortgage, at a minimum, would stress test themselves at a normal rate of 3 to 4% + Bank markup of 4% giving a total of 8%.

If we get high inflation in Germany which is not beyond the bounds of possibility, expect mortgage rates to be 10%+.

Wide scale debt forgiveness will put additional pressure on the Bank markup

Do not expect your wages to rise to account for this, Our wages rose significantly above average European rates over the bubble era (1996 to 2008) We are more likely to have stagflation while Europe has inflation.

murphaph

Villa05 wrote: »

If we get high inflation in Germany which is not beyond the bounds of possibility, expect mortgage rates to be 10%+.

Indeed, Germany is the key and what's happening here in the property market (at least in many regional markets) is house price and rent increases.

Rich Greeks and Italians (and Germans) have decided that German property is a safe haven for their money in these times of economic uncertainty, so property and with it rent is on the up. I would go so far as to say that there are regional housing bubbles forming in Germany.

This could drive demands for German wages up and result in a general increase in inflation, which would see ECB rate rise IMO.

The weird side effect of a property market collapse in peripheral EU states is a property boom in Germany.

The_Conductor

Villa05 wrote: »

If the ECB rate is at an emergency level, common sense would dictate that anyone going for a mortgage, at a minimum, would stress test themselves at a normal rate of 3 to 4% + Bank markup of 4% giving a total of 8%.

If we get high inflation in Germany which is not beyond the bounds of possibility, expect mortgage rates to be 10%+.

Wide scale debt forgiveness will put additional pressure on the Bank markup

Do not expect your wages to rise to account for this, Our wages rose significantly above average European rates over the bubble era (1996 to 2008) We are more likely to have stagflation while Europe has inflation.

Wim Duisberg indicated several times that 'normalisation' of rates would indicate an overnight rate of 4.5%. Normal lending practices are to put 1% on top of this (and this is indeed the longterm lending rate in the Netherlands and Germany) giving you a securitised lending rate of between 5.5 and 6% (note- this tends to be fixed for the term of the mortgage- something we simply don't do here).

Villa05

smccarrick wrote: »

Wim Duisberg indicated several times that 'normalisation' of rates would indicate an overnight rate of 4.5%. Normal lending practices are to put 1% on top of this (and this is indeed the longterm lending rate in the Netherlands and Germany) giving you a securitised lending rate of between 5.5 and 6% (note- this tends to be fixed for the term of the mortgage- something we simply don't do here).

Agree 100%, unfortunately we are not going to see normal banks for the duration of the mortgage, therefore, the 4%+ on top of the ECB rate is probably here to stay.

quad_red

smccarrick wrote: »

note- this tends to be fixed for the term of the mortgage- something we simply don't do here).

Why don't we do that here? It would bring an enormous amount of stability and security wouldn't it?

People could plan.

Villa05

quad_red wrote: »

Why don't we do that here? It would bring an enormous amount of stability and security wouldn't it?

People could plan.

We are a basket case economy that only think short term and to hell with the consequences. Planning for the future has no place in a basket case economy

Chris_5339762

If I could switch my mortgage to a 5% (say) 10 or 20 year fixed with ability to overpay I'd jump on it. Having a maximum of 3 years fixed is just too low. Whilst I could take a hit of a few % in the SVR increase I'd rather not have to as my wages wont be going up for years.

StillWaters

Villa05 wrote: »

If the ECB rate is at an emergency level, common sense would dictate that anyone going for a mortgage, at a minimum, would stress test themselves at a normal rate of 3 to 4% + Bank markup of 4% giving a total of 8%.

If we get high inflation in Germany which is not beyond the bounds of possibility, expect mortgage rates to be 10%+.

Wide scale debt forgiveness will put additional pressure on the Bank markup

Do not expect your wages to rise to account for this, Our wages rose significantly above average European rates over the bubble era (1996 to 2008) We are more likely to have stagflation while Europe has inflation.

Whilst I agree that it's possible, if not probable that inflation is likely to become a problem at Europes core as the economy recovers, I disagree that Ireland will face stagflation, I don't think we are as peripheral as you think.

makeorbrake

Chris_5339762 wrote: »

Having a maximum of 3 years fixed is just too low.

I've never considered fixing for this very reason - it's pointless to fix for 3 years. A lot of people have justified fixing on the basis that they know exactly what their outgoings are - but if it's just for three years, they are setting themselves up for a shock at the end of the three year period......so therefore, what's the point.

The_Conductor

On the continent its considered the norm to fix for the entire length of the mortgage- and the mortgages in turn are held by pensions companies- who consider the 5-6% return a reasonable return, as the investments are considered to be very low risk. The current issue in Ireland- particularly given our PPR guarantees- is why on earth would a pension fund consider investing in similar mortgages- if the person paying the mortgage stops paying, the family home is considered sacrosanct- so any investor would be out on a limb. The only way a pension company would be happy to invest here, is if there was a sufficient risk premium associated with the investment- given our treatment of the family home- I'd hazard a return in excess of 10% would be merited- which would crucify any potential mortgagee.

The rules governing family homes- is most probably why its simply not feasible to lock rates for the life of a mortgage, in an Irish context.

We need to grow up. Its all well and good guaranteeing a roof over everyone's head- but like that woman in Blackrock who's milking Axa at the moment- a roof shouldn't be the Four Seasons- accommodation should be accommodation, and if its unaffordable, people should be forced to cut their cloth to fit their means. Our politicians don't have the guts to grasp this mettle though.

spockety

smccarrick wrote: »

On the continent its considered the norm to fix for the entire length of the mortgage- and the mortgages in turn are held by pensions companies- who consider the 5-6% return a reasonable return, as the investments are considered to be very low risk. The current issue in Ireland- particularly given our PPR guarantees- is why on earth would a pension fund consider investing in similar mortgages- if the person paying the mortgage stops paying, the family home is considered sacrosanct- so any investor would be out on a limb. The only way a pension company would be happy to invest here, is if there was a sufficient risk premium associated with the investment- given our treatment of the family home- I'd hazard a return in excess of 10% would be merited- which would crucify any potential mortgagee.

The rules governing family homes- is most probably why its simply not feasible to lock rates for the life of a mortgage, in an Irish context.

We need to grow up. Its all well and good guaranteeing a roof over everyone's head- but like that woman in Blackrock who's milking Axa at the moment- a roof shouldn't be the Four Seasons- accommodation should be accommodation, and if its unaffordable, people should be forced to cut their cloth to fit their means. Our politicians don't have the guts to grasp this mettle though.

But... but... the famine... our colonial past... oppressive landlords.... It's in the "fibre of our being"...