ECB rates - sanity check

FutureGuy

Hi all,
Are there any good articles about what can be expected with ECB rates over the next few years.

Sale agreed and mortgage repayments will be 1050, about 25% of net income after tax/pension/health insurance etc

Thanks!

Moonbeam

Are you on a tracker?
If not the banks can do what they want with regards to interest rates.
I know people paying 4% higher on their non tracker mortgages then on their older trackers.

loyatemu

rates are as low as they are ever going to go, but when they'll start going up again, who knows.

Variable mortgage rates did not follow the ECB rate down as banks have been using them to cover some of their losses on old tracker mortgages. It remains to be seen whether they'll increase variable rates if the ECB rate goes up, as in theory it will allow them to claw back some of their tracker losses - it depends on competition I guess.

Lumen

The ECB is still doing extraordinary amounts of QE, so we're a long way off significant interest rate rises.

The rate on bank overnight deposits is -0.4%.

Nothing to see until 2020 at least, unless you want to go looking for black swans.

astrofool

Check out the long term fixed for an indication of where rates will go, anything else is guess work really, and will vary from wildly optimistic to pessimistic.

One thing I would note, there's a lot of voters in the "paying a mortgage" boat, so, no matter what happens, governments will try and keep these people happy.

whiskeyman

astrofool wrote: »

One thing I would note, there's a lot of voters in the "paying a mortgage" boat, so, no matter what happens, governments will try and keep these people happy.

Isn't the ECB supposed to be independent though?

padd b1975

astrofool wrote: »

Check out the long term fixed for an indication of where rates will go, anything else is guess work really, and will vary from wildly optimistic to pessimistic.

One thing I would note, there's a lot of voters in the "paying a mortgage" boat, so, no matter what happens, governments will try and keep these people happy.

I would be in that boat, 100% mortgage* at as close to the top of the market that makes no difference.

If-as an earlier poster said-rates hold until 2020 (I feel that may be a little optimistic) that will be around 50% of the term of my tracker* at historically low rates.

I REALLY HAVE NO CAUSE TO COMPLAIN WHEN RATES START TO CREEP BACK TO NORMAL.


*A product that never should have been made available to customers.

murphaph

padd b1975 wrote: »

I would be in that boat, 100% mortgage* at as close to the top of the market that makes no difference.

If-as an earlier poster said-rates hold until 2020 (I feel that may be a little optimistic) that will be around 50% of the term of my tracker* at historically low rates.

I REALLY HAVE NO CAUSE TO COMPLAIN WHEN RATES START TO CREEP BACK TO NORMAL.


*A product that never should have been made available to customers.

Trackers are fine so long as they track the rate at which the bank refinances and not the ecb base rate.

Lumen

whiskeyman wrote: »

Isn't the ECB supposed to be independent though?

Well that's debatable, but there are a lot of unhappy German savers. Other Eurozone governments would likely be unsympathetic to more special pleading from Ireland after it's managed to so completely screw up housing policy since the last crash, whilst taking "look over there" money from tax-dodging multinationals at the expense of other European countries.

Ray Palmer

padd b1975 wrote: »

*A product that never should have been made available to customers.

Your choice how can you blame the bank?
ECB rate sounds like it will go up in the next year but it isn't really possible to guess the long term. It could easily raise to 5 % at some point in the next 15-20 years. The thing is income will likely increase in that time due to inflation at the least so your mortgage payments will seem less. It most certainly will be less than rent

padd b1975

Ray Palmer wrote: »

Your choice how can you blame the bank?
ECB rate sounds like it will go up in the next year but it isn't really possible to guess the long term. It could easily raise to 5 % at some point in the next 15-20 years. The thing is income will likely increase in that time due to inflation at the least so your mortgage payments will seem less. It most certainly will be less than rent

I'm not blaming anyone, not sure where you got the idea that I am.

Tracker mortgages made no business sense whatsoever as has been proven by the losses they continue to incur for the banks and the dishonest-criminal if I'm honest-way some banks have treated their tracker customers in an effort to get them off the lower interest rate.

Personally speaking as a PTSB tracker customer, they have been excellent to deal with and apart from the yearly statement in January and a few tweaks to mortgage interest relief over the years I'm left to my own devices.

FutureGuy

I guess we are just a little jittery about it is all. 25 year mortgage and the % cost of overall net income is 22%. So if that rate starts to go up (and it really is a case of when), then we just need to factor this in.

Yourself isit

FutureGuy wrote: »

I guess we are just a little jittery about it is all. 25 year mortgage and the % cost of overall net income is 22%. So if that rate starts to go up (and it really is a case of when), then we just need to factor this in.

I think it's unlikely that retail rates will go up if trackers go up. The reason why we have such high retail rates is to subsidise trackers.

Yourself isit

That said - it depends on the competitive nature of the market.

astrofool

whiskeyman wrote: »

Isn't the ECB supposed to be independent though?

"Yes", I have a rock that keeps tigers away, if you're interested

Lumen

Yourself isit wrote: »

I think it's unlikely that retail rates will go up if trackers go up. The reason why we have such high retail rates is to subsidise trackers.

The problem with trackers isn't the absolute rate, it's the insufficient NIM (net interest margin), the difference between the rate charged and the cost of funds.

Most (possibly all) trackers are over the cost of funds, but not enough to cover the costs of the bloated, inefficient banks. So the extra NIM on variable rate products balances things out and makes the banks profitable.

The term "subsidize" is loaded, pitting customer against customer. What's being subsidized are the banks' crappy lending practices and inefficient operations, it's an extended bailout (just like all the insurance company failures which get loaded back onto our premiums). Tracker customers who are paying their mortgages are keeping up their end of the bargain.

Anyway, what matters is rate - cost of funds. Cost of funds is closely correlated with ECB rate except when bad things happen.

This is a US chart but I'm sure there are similar things for Europe. Spot the bad thing happening.

BBMcQ

If this is your first time mortgage, it would be prudent to grab a 5 year fixed or at least fix half your mortgage amount for 5 years. It's all a big bet, but if look at the 5 year fixed repayments and think "I can live with that" then go for it. Note that if you fully fix, you will be penalised for paying off a lump sum early, which I why I like the idea of majority or part-fixing.

Stop trying to beat "The House" - note the capital H.

Ray Palmer

BBMcQ wrote: »

If this is your first time mortgage, it would be prudent to grab a 5 year fixed or at least fix half your mortgage amount for 5 years. It's all a big bet, but if look at the 5 year fixed repayments and think "I can live with that" then go for it. Note that if you fully fix, you will be penalised for paying off a lump sum early, which I why I like the idea of majority or part-fixing.

Stop trying to beat "The House" - note the capital H.

The rate being slow and so unlikely to go up rapidly I amount sure it is the prudent idea. I agreed this is the best idea in general but the rate being determined by a European rate changed the way we as members of the Euro can look at it. It is the same problem that made the government unable to deal with the overheating before. Most likely cheaper to go variable but it is opinion as you say
Even in fixed mortgages there are often allowances for extra payments once a year.

trobbin

FutureGuy wrote: »

Hi all,
Are there any good articles about what can be expected with ECB rates over the next few years.

Sale agreed and mortgage repayments will be 1050, about 25% of net income after tax/pension/health insurance etc

Thanks!

I wouldn't worry if I where you. After paying ;mortgage, tax, health insurance and pension you've got 3k plus disposable income per month? Interest rates won't hurt you.

However, they will go up. FED has increased already this year, with 3 more rises expected this year alone. They want base rate at "normal levels" (2/4%). So while America dose this it will force the hand of the ECB, as all large deposits will leave for US banks if the ECB doesn't follow suit.

IMF has called for rate increases to tackle inflation. The Germans have also been going crazy over these low rates as prices are rising very high over there. ECB would ideally already have increased rates in Germany and definitely Ireland to tackle property rises, but they're worried by other failing economies.

It's been known, first FED, then BOE, then the ECB. Once they start they won't stop. I see base rates at 4% before 2020.

howamidifferent

trobbin wrote: »

I see base rates at 4% before 2020.

That would be some jump, even at its worst it ( ECB rate )went to 4.7% I believe around 2008!! I can't see rates rising that high over the next 2/3 years given how badly many countries are still doing, including ourselves. Outside of Dublin not very much has changed for many people in terms of pay increases and job stability.

jester77

I don't see them rising any time soon and if they do it will be a slow process. I would fix for as long as possible, here in Germany you can fix 20-30 years mortgages for <2% here and you can get <1% for shorter terms. I have mine fixed for 20 years, it eliminates the worry about rates rising and you will always know your financial situation when planning ahead.