Are variable mortgage rates about to climb?

sconry

What do you think is going to happen with the ECB rate? What will that mean for variable mortgage rates? If you had the choice, would you fix now or go variable?

andrew

I don't know which ECB rate tracker mortgages tend to be linked to, but I do know that all ECB rates are the lowest they've ever been, and the lowest they're ever likely to be. If you're in a position now to lock in an interest rate which is somehow connected to an ECB rate, then as far as I can tell it'd be a no brainer to do so.

Taxburden carrier

Unless it's a tracker the rate will bear no relationship to the ECB. Basically all other mortgage rates are subsidising trackers. When the ECB rate increases, a lower subsidy may be needed or the banks may try to maintain margins.

Calibos

Taxburden carrier wrote: »

Unless it's a tracker the rate will bear no relationship to the ECB. Basically all other mortgage rates are subsidising trackers. When the ECB rate increases, a lower subsidy may be needed or the banks may try to maintain margins.

As a keen reader of this forum but with little knowledge, are you implying that if anything, an increase in the ECB rate could potentially mean variable rates dropping because the trackers need to be subsidised less. Or at worst the variable rates remain the same with the difference meaning extra margin for the banks?

3DataModem

Calibos wrote: »

As a keen reader of this forum but with little knowledge, are you implying that if anything, an increase in the ECB rate could potentially mean variable rates dropping because the trackers need to be subsidised less. Or at worst the variable rates remain the same with the difference meaning extra margin for the banks?

Potentially, yes.


Realistically - ECB up, variable up.

Taxburden carrier

Calibos wrote: »

As a keen reader of this forum but with little knowledge, are you implying that if anything, an increase in the ECB rate could potentially mean variable rates dropping because the trackers need to be subsidised less. Or at worst the variable rates remain the same with the difference meaning extra margin for the banks?

That's my thinking Calibos. Banks will look to maintain their revenue streams. A lot of these streams are drying up but mortgage holders are generally immobile and are therefore in my opinion a prime target.

realitykeeper

sconry wrote: »

What do you think is going to happen with the ECB rate? What will that mean for variable mortgage rates? If you had the choice, would you fix now or go variable?

This is an interesting question. ECB rates are probably about as low as they can go. The ECB want an inflation rate of 2% but their scope to lower interest rates further is exhausted.

Due to certain risk factors, they cannot lower the interest rates more and they are in a conundrum because they have short term reasons to lower interest rates but this carries very serious systemic risks in the longer term. This is why I believe interest rates will stay as they are for a while. In other words the ECB will adopt a wait and see approach and if I had a variable mortgage, I would do the same.

When interest rates were falling, the banks had to offset the losses they were making on tracker mortgages by increasing variable interest rates. If interest rates were to rise, variable interest rates would unfortunately not necessarily fall because the banks will incur other new costs. Specifically, the ECB will increase what they charge the banks for keeping money on deposit. They will do so in order to force the banks to lend in the hope it will stimulate the economy. Personally, I think ECB policy is a mistake, it is shortsighted and misguided.

L1011

KBC are actually cutting their SVR for new customers in an effort to attract business - I suspect that the spread between ECB and the standard SVR won't be as large as it is now when ECB rates start to rise.

gaius c

MYOB wrote: »

KBC are actually cutting their SVR for new customers in an effort to attract business - I suspect that the spread between ECB and the standard SVR won't be as large as it is now when ECB rates start to rise.

Thought it was fixed rates only?

antoobrien

sconry wrote: »

What do you think is going to happen with the ECB rate? What will that mean for variable mortgage rates? If you had the choice, would you fix now or go variable?

With the recently reported "core" downturn, interest rates aren't going up until eurozone inflation hits 1.5% or so (this will be the point that they'll need to start throttling things to keep the 2% target)..

DulchieLaois

Would it best to keep Mortgage at variable rate at present ?

Godge

antoobrien wrote: »

With the recently reported "core" downturn, interest rates aren't going up until eurozone inflation hits 1.5% or so (this will be the point that they'll need to start throttling things to keep the 2% target)..

I really don't see that happening for at least 2 years. The ECB cut rates again and won't start its programme of bonds until October. It will take at least a year for all of these measures to have an effect and a further year for interest rates to start climbing in any meaningful way.


http://www.irishtimes.com/business/economy/ecb-cuts-rates-to-just-0-05-as-draghi-unveils-new-stimulus-package-1.1917904

http://www.rte.ie/news/business/2014/0904/641354-ecb-meeting/

godtabh

Isn't the big thing going to be the German inflation rates going to be a deciding factor in how the ECB deals with its interest rates?

Realistically the interest rates cant stay this low for long. I'd say in the medium term the interest rates will rise to 3-5% and even higher over the long term.

NIMAN

godtabh wrote: »

Isn't the big thing going to be the German inflation rates going to be a deciding factor in how the ECB deals with its interest rates?

Realistically the interest rates cant stay this low for long. I'd say in the medium term the interest rates will rise to 3-5% and even higher over the long term.

What do you define as the medium term?

I can't see interest rates at 5% for a long time, not considering how precarious the recovery in Europe is at present.

Godge

NIMAN wrote: »

What do you define as the medium term?

I can't see interest rates at 5% for a long time, not considering how precarious the recovery in Europe is at present.

Medium-term in the context of a 25-year mortgage is ten years.

The big winners at the moment are those who re-mortgaged in the mid-2000s with a tracker mortgage for home improvements because they thought moving house was too expensive.

They had bought their houses at a low cost and avoided the costly "trading-up" madness while availing of the lowest rates around.

Cookie_Monster

Depend when the next big crash is and where. Chinese property is already on a slow down and will cause problems with their economy. Countries need higher interest rates in place to allow downward correction when the next crash happens, and it's one of the key reasons NZ has been stating to justify it's interest rate rises this year. One of the only 1st world country to have interest over 3% currently (if you want to count Russia and South Africa in there)