ECB Rate Cut

StillWaters

Great news for those of us lucky enough to have a tracker.

Base rate cut to .5%
http://www.ecb.int/press/pr/date/2013/html/pr130502.en.html

Ritchi

Does this mean that banks are losing more money on trackers? Hence why they have put up the variable rates next month.

Or are they also able to borrow at .5% cheaper, meaning they'll lose the same on them.

StillWaters

Ritchi wrote: »

Does this mean that banks are losing more money on trackers? Hence why they have put up the variable rates next month.

Or are they also able to borrow at .5% cheaper, meaning they'll lose the same on them.

Sadly I think there will be another rise in SVRs. The recent rise was announced before this cut. They will be looking to make up a further shortfall.

Ritchi

StillWaters wrote: »

Sadly I think there will be another rise in SVRs. The recent rise was announced before this cut. They will be looking to make up a further shortfall.

So the ECB rate doesn't affect the rate the banks borrow at?

StillWaters

Ritchi wrote: »

So the ECB rate doesn't affect the rate the banks borrow at?

Not really, the interbank rates are already very very low.

The_Conductor

StillWaters wrote: »

Not really, the interbank rates are already very very low.

Interbank rates may be low- the issue however is that banks are loathe to lend to one another- which is why there is so much cash on overnight deposit at the ECB. BOI and some contemporaries have gotten bond auctions off lately, without the benefit of the government guarantee- but at rates in the 4-5% range (which ordinarily would be considered pretty good- its only when held up against the ECB overnight rate that they seem poor in comparison). Most lenders thus have an effective cost of borrow north of ~4% while they're only getting perhaps 2% on average from tracker mortgages- which means the trackers are costing them an arm and a leg.

Ritchi

smccarrick wrote: »

Interbank rates may be low- the issue however is that banks are loathe to lend to one another- which is why there is so much cash on overnight deposit at the ECB. BOI and some contemporaries have gotten bond auctions off lately, without the benefit of the government guarantee- but at rates in the 4-5% range (which ordinarily would be considered pretty good- its only when held up against the ECB overnight rate that they seem poor in comparison). Most lenders thus have an effective cost of borrow north of ~4% while they're only getting perhaps 2% on average from tracker mortgages- which means the trackers are costing them an arm and a leg.

Thanks!

My question is though, if that 4-5% range they are currently getting their money at would drop by the 0.5% or not.

So, if their borrowing rates stay the same, this would mean they are losing a further .5% on tracker mortgages, and remain the same on fixed and variable(not including what they are adding on next month)

Or if the rates they borrow at have dropped, they are in the same position with trackers, and actually making an extra 0.5% on variable and fixed rate.

gaius c

StillWaters wrote: »

Not really, the interbank rates are already very very low.

But it's not the interbank market that's providing all their funding right now.

The_Conductor

Ritchi wrote: »

Thanks!

My question is though, if that 4-5% range they are currently getting their money at would drop by the 0.5% or not.

So, if their borrowing rates stay the same, this would mean they are losing a further .5% on tracker mortgages, and remain the same on fixed and variable(not including what they are adding on next month)

Or if the rates they borrow at have dropped, they are in the same position with trackers, and actually making an extra 0.5% on variable and fixed rate.

It may fall- however whether it falls or not depends on how institutional investors view the various lenders, and what return they demand for investing in them.

It probably will fall- because the return institutional investors can get on other assets will likely fall, with the lowering of the ECB base rate- however by what percentage, or if at all, depends entirely on market sentiment, how the lenders are viewed, their credit worthiness etc etc etc

Ritchi

smccarrick wrote: »

It may fall- however whether it falls or not depends on how institutional investors view the various lenders, and what return they demand for investing in them.

It probably will fall- because the return institutional investors can get on other assets will likely fall, with the lowering of the ECB base rate- however by what percentage, or if at all, depends entirely on market sentiment, how the lenders are viewed, their credit worthiness etc etc etc

That's kind of what I thought. Thanks for confirming.

So if it doesn't fall or doesn't fall by the full .5%, we can expect variable rates to go up even more to compensate for trackers. Great.

gaius c

Ritchi wrote: »

That's kind of what I thought. Thanks for confirming.

So if it doesn't fall or doesn't fall by the full .5%, we can expect variable rates to go up even more to compensate for trackers and arrears. Great.

Fixed your post. Everybody keeps forgetting about the 100k+ mortgages that are not being paid in full or at all.

The_Conductor

Ritchi wrote: »

That's kind of what I thought. Thanks for confirming.

So if it doesn't fall or doesn't fall by the full .5%, we can expect variable rates to go up even more to compensate for trackers. Great.

Its not just trackers- many services that were free previously, or had low charges associated with them- will likely increase, towards plugging the shortfall. PTSB are the only lender who have a current account that they're providing free of charge (providing you lodge X amount per month and have a minimum number of online transactions)- and even this is considered experimental, with some pundits suggesting the taxpayer will ultimately end up having to plug any shortfall they incur through this 'innovative' free current account........

Look on the brightside- BOI doubled all their tracker rates in the UK during the week- because the legislation over there didn't stop them doing it. Its a different story here- they don't have that leeway. They are mopping up cash in the UK- rather than nuking us poor Irish customers harder.

kennyb3

Ritchi wrote: »

That's kind of what I thought. Thanks for confirming.

So if it doesn't fall or doesn't fall by the full .5%, we can expect variable rates to go up even more to compensate for trackers. Great.

Also just to note the rate is 0.5% the reduction is 0.25%.

ronan45

Enjoy the next 18 months ! The gravy train is coming to the end of the line!!!
Economists now believe it will be April 2015 before rates rise.

http://www.independent.ie/business/personal-finance/property-mortgages/interest-rate-rise-unlikely-for-18-months-29630495.html

gaius c

ronan45 wrote: »

Enjoy the next 18 months ! The gravy train is coming to the end of the line!!!
Economists now believe it will be April 2015 before rates rise.

http://www.independent.ie/business/personal-finance/property-mortgages/interest-rate-rise-unlikely-for-18-months-29630495.html

Good news for trackers. No news for everybody else.

D3PO

ronan45 wrote: »

Enjoy the next 18 months ! The gravy train is coming to the end of the line!!!
Economists now believe it will be April 2015 before rates rise.

http://www.independent.ie/business/personal-finance/property-mortgages/interest-rate-rise-unlikely-for-18-months-29630495.html

Nothing new. This has been the projection for a few months now.

wirelessdude01

Not exactly new news. This has been kinda known for the past few months with the slight possibility that there could be another small cut for a few months.