Are The Same Arguments For Fixing A Mortgage Relevant In Ireland

[Sybil13]

I did ask this question a month or so ago but still am not clear if the arguments FOR fixing in the UK are the same in Ireland.

Found a few articles in the Irish Independent recently saying people should fix;

The warning was issued because rates that banks charge each other for loans in the eurozone have come off their lows and are now starting to rise.

Fixed rates available to homeowners on the Irish market are the lowest they have ever been and are now likely to start rising, Ulster Bank economist Simon Barry said yesterday.

Wholesale rates, or the interest rate banks charge each other, for three-year fixed loans have jumped from 2pc in mid May to 2.4pc at the moment.

The five-year rate that banks charge each other has risen over 3pc for the first time since February, Mr Barry added.

Mr Barry said that it was looking more likely that we are past the worst of the economic downturn and banks were starting to price this into the rates they charge each other for loans.

"Things are becoming less awful," Mr Barry commented.

Mortgage brokers said that this meant that banks and building societies will soon start hiking the cost of fixed-rate mortgages.

Irish Mortgage Corporation director of marketing Frank Conway said: "The fixed rates available on the market are the best I have seen and are unlikely to be repeated."

BORROWERS were advised yesterday to lock in to a fixed rate mortgage after comments from the European Central Bank were interpreted as signalling an end to the current cycle of rate cuts.

Economist Austin Hughes of KBC Bank said it was now likely eurozone rates would not go below their current level of 1pc even if the first hike in interest rates seems far away.

Comments from ECB president Jean-Claude Trichet yesterday indicated that central bankers believe the worst is over for Euorpean economies, but that the turnaround would be slow.

However, I also read:

Well, if you fix now, you’ll pay a little more now for the privilege of getting a fixed rate, but if interest rates go up, you’ll eventually begin to benefit since you’re repayments won’t increase.

But what if the recession lasts longer than anyone expects – given that it’s arrived when many “experts†didn’t expect it at all, and others didn’t expect it to be as harsh as it is. What if the ECB needs to keep rates at 1% for a significant period of time? What if they found that they had to drop rates even further, to 0.75% or 0.5%? In these situations, you’ll end up paying more in your repayments than you are now, and you’ll end up bleating about being caught in a fixed rate mortgage the same as many are at the moment.

My Q is that even if the ECB cut rates further that doesn't mean fixed rates are going to come down does it?

UK fixed rates are going UP regardless of the 0.5% base rate, if someone was to wait in Ireland for the SVR to start to rise the Fixed Rates by then could be much more expensive couldn't they ?

It will cost my daughter and her husband another 200 euros a month to fix their mortgage but should they wait they can't afford to pay more than the 4.9 she is being offered now.

I know nothing about mortgage lending or historic interest rates in the eurozone so any advice would be REALLY APPRECIATED.

[Bloo Loo]

well, my view is that if rates are going up, then, cos houses are priced with cash PLUS a loan, and that everyday costs are going up, pressuring cash, and loan costs are going up, pressuring the loan, then house prices can only come down.

Id much rather a smaller debt to buy a house.

its my capital thats on the line here, not the banks loan.

[Sybil13]

well, my view is that if rates are going up, then, cos houses are priced with cash PLUS a loan, and that everyday costs are going up, pressuring cash, and loan costs are going up, pressuring the loan, then house prices can only come down.

Id much rather a smaller debt to buy a house.

its my capital thats on the line here, not the banks loan.

Hi Bloo not sure if your advice is based on you thinking they are FTB's or that they should try to sell, but they already have a mortgage which was considered 50%LTV , I wish they could sell I think property here will fall 70% + there is very little employment and until recently Ireland was almost 3rd world. Selling however not an option.

[Bloo Loo]

Hi Bloo not sure if your advice is based on you thinking they are FTB's or that they should try to sell, but they already have a mortgage which was considered 50%LTV , I wish they could sell I think property here will fall 70% + there is very little employment and until recently Ireland was almost 3rd world. Selling however not an option.

sybil...not advice....entertainment purposes only ..if you please.

sorry to hear of the irish plight...nasty old bankers dun it to you.

equity in a house is a measure of its sale value minus any loan.

so if ftbs cant enter at first rung, then the following rungs equity also falls, so if I understand correctly, yes,the problem affects all rungs.

[Sybil13]

Still struggling with regards what advice I should give my daughter and her husband.

I know nothing about EBC interest rates but read this , old article but I am sure still applicable:

The sensitivity of Irish mortgage holders to rising interest rates will be far greater than for many other EU citizens because the vast majority of Irish borrowers - about 75 per cent - have variable mortgage rates, while the majority of continental borrowers - especially in France and Germany - have long-term fixed rate mortgages at rates that are far lower than the fixed-rate mortgages available here. In other eurozone countries, mortgages may be at variable rates, but they are capped.

That means that most Irish mortgage holders will feel the pain of each interest rate hike keenly, while their continental cousins can sit back and relax, as interest rate hikes there don’t really affect existing mortgage holders.

The corollary of this disparity between the two markets is that the ECB needs to put up rates higher and faster to have an impact on inflation on the continent that would be the case here.

Of the Irish consumers who do fix their mortgages, most fix for periods of three years or less. Irish consumers don’t generally go for long-term fixed rate mortgages for a variety of reasons - partly because there are few such products on offer, and partly because the ones on offer are considered too expensive relative to variable rate products.

‘‘Not many people have seen the need for fixing yet against a recent history of relatively low rates,†he said. ‘‘Depending on an individual’s circumstances, it may be appropriate for customers to consider this option.â€

But, as the figures demonstrate, it is also true that the premium which customers must pay for a fixed-rate mortgage here is far higher than on the continent, thus making them unattractive to Irish consumers.

The big disparity in the price of fixed-rate mortgages between Ireland and France may not be totally attributable to profiteering by the Irish banks. Rather, the difference in the pricing is due to differences in the way Irish banks raise funds for mortgage lending compared with continental banks. In Ireland and Britain, banks rely primarily on retail deposits as a source of funding, whereas on the continent, banks raise cheaper long-term funds for mortgage lending in their well-developed bond

As I said in the original post my daugther has a chance to fix at 4.9% (200 euros a month more than she is currently paying).

Her mortgage broker told her here was no point in fixing! I just don't know what the Irish market is likely to do but my Q today is, if it goes up is it likely to jump from 4.9 to 5.5 in one leap or slow increments?

I am just thinking if she sticks with SVR for now and waits for it to go up to 5.5 % its going to cost her about 2340euros more over the 5 years than if she had fixed at 4.9% but she will be gaining 200 euros a month whilst she waits to see what next, but obviously this is NOT good plan if rates are likely to jump from 4.9 to 6% in one leap.

Anyone got any advice ?

[Sybil13]

Can anyone provide me with a link for ECB interest rates since 1980 or something ? Tried to do a search but can't find anything like the BOE / CML Stats for ECB.

Trying to find what the historical average is and how high ECB rates are likely to go in the next decade, anyone got an opinion on this?

[Guest DissipatedYouthIsValuable]

If you have an Irish mortgage and can't afford it, it's probably because you've been talking the economy down, and should commit suicide.

- Bertie Ahern

[Bloo Loo]

Can anyone provide me with a link for ECB interest rates since 1980 or something ? Tried to do a search but can't find anything like the BOE / CML Stats for ECB.

Trying to find what the historical average is and how high ECB rates are likely to go in the next decade, anyone got an opinion on this?

it would only go back as far as the euro I would think.

[Sybil13]

it would only go back as far as the euro I would think.

Bear of little brain doh! 1999 then! Highest I think has been 4.25% . Just spoke to daughter's mortgage broker, found out she is on a Tracker but she didn't realise!!! Thank heavens I spoke to him before she posted the Fixed Rate form.

Now I am thinking ECB rate + 1.5% not a bad deal but meantime Fixed Rate deals will go up and up, but how long does anyone think it will take for ECB rate to reach 3.4 % ( which would be the equivalent of what she is being offered on a fixed rate )? Could happen could it by 2011 ? If for 5 years rate will not go up above 4% and she has 2 years of 3.5% she is best not to fix, but if base rate went up to 4 % by 2011 I think she could still be better off to fix now but not if ECB rate is not likely to go above 4.25% for 10 years.

Has anyone any thoughts on this, sorry, struggling here ....

Mortgage broker said "I have never known the ECB rate to be above 4.25%". But have we not just been through the best decade of our lives with regards interest rates, or is that the point of the EU to keep interest rates low?

Edited July 29, 2009 by Sybil13

[LuckyOne]

A question that I have pondered from time to time is what would happen if Ireland left the EUR and re-established the Punt (great name in hindsight).

If Ireland realise that the loss of independence in monetary policy is catastrophic for the weakest members of the monetary union and withdraw, what would happen to all of the debts in Irealnd currently denominated in Euros?

If the loans stay denominated in EUR until the end of the interest term and then convert to Punts at that time, long term fixed deals could be catastrophic if the Punt weakens continually against the EUR as a competitive devaluation might be the only policy choice left to Ireland .....

Edited July 29, 2009 by LuckyOne

[Guest happy?]

Still struggling with regards what advice I should give my daughter and her husband.

Her mortgage broker told her here was no point in fixing! I just don't know what the Irish market is likely to do but my Q today is, if it goes up is it likely to jump from 4.9 to 5.5 in one leap or slow increments?

Anyone got any advice ?

I'm always suspicious of mortgage brokers - aren't they paid on commission? One commission in 5 years = lean times!

200 euros = 12000 euros for a 5 year insurance policy. Is that too high a price to pay for security - depends entirely on individual circumstances and attitude to risk. A cautious person would say probably not - an incautious person got us into the current mess!

[Wires 74]

Are these things easier in Ireland - has the type of HPC we have seen in the UK not occured in the Emerald Isle -reason I asked is that a Junior subordinate of mine who is resident in the Emerald Isle has recently been accepted for a seven times multiple mortgage on a semi-detached house costing around 270, 000Euro ...

I could not see any Britsh BS offering that type of deal to a FTB and the equivalent property in the UK would cost around the average I guess - £153,000 or whatever ...

[Bloo Loo]

Are these things easier in Ireland - has the type of HPC we have seen in the UK not occured in the Emerald Isle -reason I asked is that a Junior subordinate of mine who is resident in the Emerald Isle has recently been accepted for a seven times multiple mortgage on a semi-detached house costing around 270, 000Euro ...

I could not see any Britsh BS offering that type of deal to a FTB and the equivalent property in the UK would cost around the average I guess - £153,000 or whatever ...

bearing in mind the state of the irish economy, I would hazard this is a LIAR LOAN.

[Number79]

I did ask this question a month or so ago but still am not clear if the arguments FOR fixing in the UK are the same in Ireland.

I think that there are even fewer arguments for even taking out a mortgage in ireland, things are still looking horrible at best.

[Wires 74]

bearing in mind the state of the irish economy, I would hazard this is a LIAR LOAN.

Not it`s definitely not - Just seemed strange to me and the price of the property looks crazy but he assures me that similar new build semi-detached houses were going for 350K Euro only 12 months ago .

[Guest Daddy Bear]

Bear of little brain doh! 1999 then! Highest I think has been 4.25% . Just spoke to daughter's mortgage broker, found out she is on a Tracker but she didn't realise!!! Thank heavens I spoke to him before she posted the Fixed Rate form.

Now I am thinking ECB rate + 1.5% not a bad deal but meantime Fixed Rate deals will go up and up, but how long does anyone think it will take for ECB rate to reach 3.4 % ( which would be the equivalent of what she is being offered on a fixed rate )? Could happen could it by 2011 ? If for 5 years rate will not go up above 4% and she has 2 years of 3.5% she is best not to fix, but if base rate went up to 4 % by 2011 I think she could still be better off to fix now but not if ECB rate is not likely to go above 4.25% for 10 years.

Has anyone any thoughts on this, sorry, struggling here ....

Mortgage broker said "I have never known the ECB rate to be above 4.25%". But have we not just been through the best decade of our lives with regards interest rates, or is that the point of the EU to keep interest rates low?

Only reason to Fix would be for 10 year term and then pay it down as quick as you can.

[Sybil13]

I think that there are even fewer arguments for even taking out a mortgage in ireland, things are still looking horrible at best.

Sadly she already has one ! Now we are trying to work out what to do next.

Can anyone give me any advice on what is likely to happen to ECB interest rates that apparently have not gone above 4.25% in 10 years?

[brianc_li]

For what it is worth, the ECB (and the Bundesbank before it) have a long track record of tight monetary policy and consequently low interest rates. This has continued even in the recent crisis. They have not gone in for printing money (a.k.a. quantative easing) and the 1% base rate, whilst low, is still higher than that of the BoE or Fed.

It is a fair bet that rates will rise everywhere, arguably they will do so less in the Eurozone than the US or UK.

Truth is nobody really knows what is going to happen to interest rates, ECB or otherwise. Your guess is as good as that of anyone else here.

[Sybil13]

For what it is worth, the ECB (and the Bundesbank before it) have a long track record of tight monetary policy and consequently low interest rates. This has continued even in the recent crisis. They have not gone in for printing money (a.k.a. quantative easing) and the 1% base rate, whilst low, is still higher than that of the BoE or Fed.

It is a fair bet that rates will rise everywhere, arguably they will do so less in the Eurozone than the US or UK.

Truth is nobody really knows what is going to happen to interest rates, ECB or otherwise. Your guess is as good as that of anyone else here.

In a language suitable for Dummies can anyone explain why / how ECB (Bundesbank) have kept rates low whilst Ireland / UK and US (?) have had times of very high interest rates? What is the highest for UK ? At 8% + its hard to see how people paid their mortgages, I noticed on a Mortgage calculator I used recently it said WARNING this mortgage would cost you bla bla at 12% so it must be expected in the UK at least.

Still confused as to what to tell my daughter, I think at ECB + 1.5% she may as well take the risk of sticking with it.....and hope that it does not end up costing her too much more than the 4.9% she could fix at now.