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Mortgage interest rates - limiting factors?

  • 28-02-2017 10:10pm
    #1
    robocode
    Registered Users Posts: 491 ✭✭


    Hi, having recently joined the property ladder I have been curious about something. When the bank stress test your repayment capacity against interest rates going up to 6/7%, why is that chosen as an extreme? I know we are currently higher than EU rates, but what is there to stop our rates rising to 10%, or 12%, or whatever really.
    I can appreciate that this is perhaps an incredibly nuanced issue that might not have a straightforward answer, but I thought I'd try settle my curiosity.


Comments

  • #2
    Geuze
    Registered Users, Registered Users 2 Posts: 13,578 ✭✭✭✭Geuze


    The ECB inflation target is "close to 2%".

    If they are successful at keeping inflation close to 2%, then normal nominal interest rates should be approx 3%.

    Add the bank's margin and you get 5%.


  • #3
    griffzinho
    Registered Users Posts: 125 ✭✭griffzinho


    Interest rates are going to have to be kept low perpetually in my opinion. Years of leveraged money creation has meant the gap between money created (principal) and money owed (principal with interest) has been expanding. That is why everyone is in debt, Governments, people, etc. It is also why Quantitative Easing (money out of thin air) has been used to reduce this gap and get ourselves temporarily out of this crisis. Any excessive hike in interest rates will kill our indebted economy - marginal hikes will be used to cool an overheating economy.

    Core inflation in Eurozone is still well below 2% and many economies are struggling still.


  • #4
    Geuze
    Registered Users, Registered Users 2 Posts: 13,578 ✭✭✭✭Geuze


    griffzinho wrote: »
    Core inflation in Eurozone is still well below 2% and many economies are struggling still.

    Yes.

    Headline EA19 CPI is 1.8%, Jan 2017, up from 0.3% in Jan 2016.

    http://ec.europa.eu/eurostat/documents/2995521/7885873/2-22022017-AP-EN.pdf/67b105f6-fd32-4685-ac1d-62e7a394eca1

    Core EA19 CPI is under 1%, excl energy and raw food.

    I feel that by sometime in 2018, the main ECB rate will move up from 0%.


  • #5
    newacc2015
    Closed Accounts Posts: 2,379 ✭✭✭newacc2015


    Geuze wrote: »
    Yes.

    Headline EA19 CPI is 1.8%, Jan 2017, up from 0.3% in Jan 2016.

    http://ec.europa.eu/eurostat/documents/2995521/7885873/2-22022017-AP-EN.pdf/67b105f6-fd32-4685-ac1d-62e7a394eca1

    Core EA19 CPI is under 1%, excl energy and raw food.

    I feel that by sometime in 2018, the main ECB rate will move up from 0%.

    Remove the volatile energy from the index and you have eurozone inflation at 0.9%. EBC probably knows the the back of their mind if they repeat 2011/2012 and hike rates when the economy is delicate, you tank the economy


  • #6
    robocode
    Registered Users Posts: 491 ✭✭robocode


    I just caught a few minutes of someone on the radio talking about mortgage rates. I think it was Charlie Weston (but not sure), the gist was he believes Irish mortgage holders need to be aware that from next year rates will probably rise.

    If/when the rates do start rising, what sort of increments are likely? Take BOI's 1-year fixed rate of 3.55% (the right I just signed up to), when people talk about rising rates, are they talking about jumps to 4%, 5%, 6%?


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