ECB Interest Rate Hike - Impact on Mortgages

CreativeSen

So the ECB have announced they wont be increasing interest rates until Sept 2019 at the earliest.

RTE Coverage

With the ECB rate currently at rock bottom and yet Irish banks charging upwards of 3% for a 3 year fixed, I know that nobody can predict the future but I have a few questions and I am wondering what peoples thoughts are:

1 - How will Irish banks react and when are they likely to react? In 2008 the ECB rate was as high as 4.25% and apparently a typical mortgage rate in Ireland was 5.86%. Do you think banks in Ireland likely to raise rates in advance of Sept 2019? Do you think banks will increase at a significantly larger rate than the rate of increase by the ECB or keep it proportional?

2 - If you are on a fixed rate whose term is due to end post Sept 2019, would you be willing to go rate shopping in advance of any change and pay the penalty to the bank to change the T&Cs of your fixed term?

Trying to figure out what to do with the pennies i have left over at the end of every month. Thank you

Thomas

Trackers will obviously increase inline with ECB but variables might be spared the first couple of rate increases i.e. ECB will go above 0.5% before variables move in tandem. All a guess though and completely reliant on banks competing for customers.

keane2097

Well we are told regularly that the reason mortgage rates are so high for those not lucky enough to have trackers is to pay for the loss of earnings to the banks on the trackers. If there is any truth to that you are right that standard variable rates should fade the early increases at least.

zl1whqvjs75cdy

Banks to ride us all to the high heavens is my bet.

keane2097

donkeyoaty0099 wrote: »

Banks to ride us all to the high heavens is my bet.

Yeah sadly I'm sure this is how it will play out.

Thomas

keane2097 wrote: »

Yeah sadly I'm sure this is how it will play out.

It just takes one decent challenger bank and they’ll all have to compete to retain market share.

Chris_5339762

ECB rate will go up by 0.25%, variables will go up by 0.4%. That kind of thing.

4ensic15

Thomas wrote: »

It just takes one decent challenger bank and they’ll all have to compete to retain market share.

Where do you think a decent challenger bank is going to come from?

dar100

A challenger bank won't be coming from anywhere; the central bank will make sure of that. They had the chance to bring interest rates down but show no interest in doing so either

Thomas

dar100 wrote: »

A challenger bank won't be coming from anywhere; the central bank will make sure of that. They had the chance to bring interest rates down but show no interest in doing so either

UB offering 2.6% for low LTVs, BOI offering 2.8% if you have an offer of refi from elsewhere, that kind of thing. There is some competition (though obviously not enough).

BOI CEO stating their plan to increase the loan book by 15bn to 90bn. The only way to do it is through mortgages realistically. Hopefully AIB et al respond accordingly.

loyatemu

Irish variable (and fixed) rates have been falling for the last few years as the banks sort out their loan-books and compete for new business, but they're still very high by EU standards. So I'd say there's scope for them to drop further before any ECB increases occur.

ted1

Thomas wrote: »

dar100 wrote: »

A challenger bank won't be coming from anywhere; the central bank will make sure of that. They had the chance to bring interest rates down but show no interest in doing so either

UB offering 2.6% for low LTVs, BOI offering 2.8% if you have an offer of refi from elsewhere, that kind of thing. There is some competition (though obviously not enough).

BOI CEO stating their plan to increase the loan book by 15bn to 90bn. The only way to do it is through mortgages realistically. Hopefully AIB et al respond accordingly.

Have you tried to get the 2.6% rate???
It’s also only for 4years then jumps to 4.3%

With the new rules on providing info on switching and moving to different rates they may change their plans

koheim

Irish mortgage rates are still 100% more expensive than European average!!. There is no way they can raise their interest rate to Irish consumers for the next 5 years, no matter what ECB does. Irish Banks are very profitable, but hopefully their cartel business will be broken up at some stage.

4ensic15

koheim wrote: »

Irish mortgage rates are still 100% more expensive than European average!!. There is no way they can raise their interest rate to Irish consumers for the next 5 years, no matter what ECB does. Irish Banks are very profitable, but hopefully their cartel business will be broken up at some stage.

Mortgage rates were even higher 2 years ago. What goes down can go up. There is no upper limit on how much dearer that European mortgages that Irish mortgages can go.

The_Conductor

koheim wrote: »

Irish mortgage rates are still 100% more expensive than European average!!. There is no way they can raise their interest rate to Irish consumers for the next 5 years, no matter what ECB does. Irish Banks are very profitable, but hopefully their cartel business will be broken up at some stage.

I'd urge people to try and get a copy of the investors prospectus that AIB distributed earlier this year (I don't have one- but I did read it). It laid out their roadmap for the future- including little gems about using the loss they made on mortgages in Ireland over the past few years as a tax deductible asset to shelter their future profits- aka- regardless of what happens with interest rates- AIB, BOI and the others- are going to have their historic losses against which they can offset future profits- so the Irish taxpayer is going to pay through the nose again. Apparently the current government was so good as to remove the time limits on using the losses as assets- its now an indefinite asset for a bank. This agreement was made with the implicit understanding that a larger cohort of Irish borrowers would be moved away from SVR products- however, its not in writing and they are free to do as they will.

When the incumbent Irish banks can shelter their gains in Ireland behind historic losses that happened years previously- and charge whatever the hell they want for the various products- aside from a little sniping at one another to poach each other's customers- there is no manner from an external white knight to enter the market.

It was suggested a few times over the past decade that the likes of Santander- might be interested in AIB- and they did due diligence on AIB at least once- but nothing came of it (politically it was untenable- despite the wishes of AIB management to proceed).

RBS (via Ulster Bank) are still a player in the market- and are in the middle of a cleanup exercise- which should result in a lean mean little bank within a year or so- but the likes of Bank of Ireland are really beginning to alienate their customer base- even branches in large towns like Lucan are being automated- which just isn't playing well with their customers.........

The Irish banks- are actively trying to change their business models into more slimline profit machines- however- this quite simply doesn't correspond with the fee structure and traditions that their Irish customer base are used to- and while inertia has to date been the main factor in customers not moving elsewhere- if Bonkers.ie or another company- or perhaps the Consumer Protection Advocate (who got the ball rolling on those bloody tracker mortgages)- got behind a campaign to highlight just how easy it is to move to a new providor- there could potentially be carnage among the incumbents.

As for interest rates- banks do not borrow to lend to customers on the overnight market. Its a wholly artificial linkage- what the ECB overnight rate- and what your mortgage rate is. In theory- as long as banks still had a marginal profit on long term funding- they could afford to lend at below 5% pretty much indefinitely (depending of course on the rates they could sell paper into the market themselves- but it would be astounding if it increased that much- given their unique tax advantages over their European peers).

Its a toss-up between how profitable they want to be- and whether or not they wish to grow their Irish loan books- and at what cost. At the moment- some lenders are continuing to selectively unwind their Irish assets (Ulster will probably sell another 2-3 billion in non/underperforming loans- the others have already sliced and diced their books so much they're like papier maché).

BOI are actively seeking to lend as much as another 40b over the next few years into the Irish market- of which perhaps half might be retail mortgage debt- however, they're also trying to sell themselves as something akin to a US regional bank- to a very conservative Irish market- and its not working........

AIB- are acting up- and causing trouble for the regulator, the tax man, the politicians- and the Irish citizens- despite having to be rescued for the second time in 30 years- but are managing to flog shares to prospective investors as the government allow it to sell into the market- given their bizarre tax advantages that the current government decided to grant them.

Back to interest rates- consensus is two rate rises in the back end of next year- most probably .25% (25 basis points) each. I suspect the only people who will be affected- will be those on trackers- the SVR mortgage holders- will possibly be left alone until the increases top .5% at which point they'll move in tandem too- for no good reason other than to allow the banks maximise their profits.

Its simply not plausible that we'll get an external lender in here- in the environment where the incumbents can use their historic losses as assets on their balance sheets indefinitely- this is a construct that the current government put together- I imagine to make AIB attractive to foreign investors- so they could get a good price for the shares- and come out with wonderful spin- about how wonderful the politicians are- and how much money their managing to return to the exchequer- and how the bank bailouts is going to be capped at 30 billion (including an allowance for an unexpected significant NAMA profit) by 2020.

Its all spin, spin, spin........

vmb

keane2097 wrote: »

Well we are told regularly that the reason mortgage rates are so high for those not lucky enough to have trackers is to pay for the loss of earnings to the banks on the trackers. If there is any truth to that you are right that standard variable rates should fade the early increases at least.

False. Other countries have tracking mortgages currently. Well, the rate is euribor + 0.x%. (around 1%)

What we have here is rip-off loans and a weak legislation regarding repossessions etc

ted1

vmb wrote: »

keane2097 wrote: »

Well we are told regularly that the reason mortgage rates are so high for those not lucky enough to have trackers is to pay for the loss of earnings to the banks on the trackers. If there is any truth to that you are right that standard variable rates should fade the early increases at least.

False. Other countries have tracking mortgages currently. Well, the rate is euribor + 0.x%. (around 1%)

What we have here is rip-off loans and a weak legislation regarding repossessions etc

A good regulator would set the max PPR mortgage at something like ECB +2%

Cyrus

ted1 wrote: »

Have you tried to get the 2.6% rate???
It’s also only for 4years then jumps to 4.3%

With the new rules on providing info on switching and moving to different rates they may change their plans

I have 2.5% fixed for 5 years with ub all banks put you into the std variable rate when you come off but no one in their right mind is going to allow that to happen you’ll either re fix, get one of their other variable products or switch

ted1

Cyrus wrote: »

ted1 wrote: »

Have you tried to get the 2.6% rate???
It’s also only for 4years then jumps to 4.3%

With the new rules on providing info on switching and moving to different rates they may change their plans

I have 2.5% fixed for 5 years with ub all banks put you into the std variable rate when you come off but no one in their right mind is going to allow that to happen you’ll either re fix, get one of their other variable products or switch

Stats From the central bank say people do stay on it.
https://www.google.ie/amp/s/www.rte.ie/amp/971883/

Cyrus

ted1 wrote: »

Stats From the central bank say people do stay on it.
https://www.google.ie/amp/s/www.rte.ie/amp/971883/

Well then no one would fix because all banks put you back on their svr which is higher than their other variable rates and you don’t even need to switch to get a better rate. It requires a modicum of cop on

Thomas

ted1 wrote: »

Stats From the central bank say people do stay on it.
https://www.google.ie/amp/s/www.rte.ie/amp/971883/

If someone can obviously borrow at 2.5% and would accept 4.3% just because the 2.5% term ended when there are a number of alternatives (fixed and other banks), I would question whether they should be lent anything at all.

Sleeper12

When the ECB rate increases morgage rates here will most likely follow quickly enough for existing mortgages. Usually the banks won't increase for new mortgages to continue to attract businesses