Are Variable rates meant to be based on the ECB interest rate?

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SeanIRL

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Hey

When I drew down a mortgage, I was of the understanding that the variable interest rate would be inline with the ECB interest rate. Is that the case?

Today I see AIB will probably introduce a hike to 5% for variable rate mortgages but the ECB interest rate is at a historic low of .75%

Is the variable rate just set in country, between banks. The rate hikes are kindof annoying me (obviously :p) so if I have the understanding wrong I would like to know.

Thanks
 
No, there is no tie-in between the variable rate and the ECB rate. The SVR can be set to anything the bank desires. And if that sounds strange to you, it's because it is strange. It is also strange why people are so willing to sign up to contracts that include an option to raise the interest rate at the whim of the lender. But there you are.

SVR holders will be milked hard over the coming years.
 
Are you having a pop at all mortgage holders all over the world there, or just the ones with mortgages in Ireland?

From a quick google, it looks like England sets its SVR off the Bank of England Base Rate but its SVR are generally at 4.5%-5% while the Bank of England Base Rate is at .5% as well. They seem to be in a similar situation as well, banking institutions would not be able to make any money from matching the ECB Rate\Bank of England Base Rate.
 
I am not really having a pop at anyone - just expressing surprise and mild bemusement at the concept of the variable mortgage itself. It seems to me that fixed rates or tracker rates (a tracker need not necessarily be very low) make more "sense". When we have to call upon businesses to act out of "fairness" or "decency" something has gone awry.

The notion of a very long contract where one side can unilaterally hike the cost to the other is a strange one.
 
Yes it is a strange concept, but unfortunately rates are subject to change at the discretion of the individual banks. There is no direct corelation with ECB rate EURIBOR or any other base rate.
 
44brendan said:
Yes it is a strange concept, but unfortunately rates are subject to change at the discretion of the individual banks. There is no direct corelation with ECB rate EURIBOR or any other base rate.
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argh, at least I needed get annoyed now when I see rate increases so far off the ECB rate now. They are what they are I guess
 
bugler said:
The notion of a very long contract where one side can unilaterally hike the cost to the other is a strange one.
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It is but the bank are the people with the power in that situation, bacuse you want their money so they set the rules and you either take it or leave it

It wouldnt be so bad if there was competition in the market and if a different bank offered you a better rate you could switch to them.

Trackers were a gamble aswell as the SVR, they just happen to be the winners at the moment. What makes it worse is that the ECB rate isnt the rate that banks borrow at and that SVR holders are subsidising trackers at the moment.
 
shigllgetcha said:
It is but the bank are the people with the power in that situation, bacuse you want their money so they set the rules and you either take it or leave it

It wouldnt be so bad if there was competition in the market and if a different bank offered you a better rate you could switch to them.

Trackers were a gamble aswell as the SVR, they just happen to be the winners at the moment. What makes it worse is that the ECB rate isnt the rate that banks borrow at and that SVR holders are subsidising trackers at the moment.
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They are but other factors need consideration too. Up to the end of 2008 SVRs correlated strongly with 3 month EURIBOR and were priced on it - EURIBOR movements were an excellent predictor of SVRs. Then Financial Armageddon strikes and banks now have to deal with unprofitable trackers, rising mortgage arrears, rising funding costs and ELG fees, all of which will impact on a bank's SVR. Basically the strong correlation previously mentioned went down the tubes along with the economy. :rolleyes:
 
SeanIRL said:
argh, at least I needed get annoyed now when I see rate increases so far off the ECB rate now. They are what they are I guess
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To keep it simple, in normal circumstances the money used by the bank to give out in mortgages is the money placed on deposit with them, so if the bank is paying 2% - 3% on deposits the gap is not as big as you might expect...

In crude terms it is also a big part of the reason why the banks are loosing on the trackers - the interest rate they are charging on the mortgage is not in line with the rate they are having to pay for the funds they gave out in mortgages.
 
Jim2007 said:
In crude terms it is also a big part of the reason why the banks are loosing on the trackers
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People keep saying that the banks are loosing out. No, the variable rate mortgage holders are subsidising these trackers. Banks do not loose out.

And those who may eventually get debt forgiveness.....guess who pays

And those who walk away from negative equity homes.....guess who pays

And those who walk from credit card debts etc...... guess who pays

You've got it in one, variable mortgage holders.
 
Pope John 11 said:
People keep saying that the banks are loosing out. No, the variable rate mortgage holders are subsidising these trackers. Banks do not loose out.

And those who may eventually get debt forgiveness.....guess who pays

And those who walk away from negative equity homes.....guess who pays

And those who walk from credit card debts etc...... guess who pays

You've got it in one, variable mortgage holders.
Click to expand...

That being the case then... Does anybody know of any lobby/aggitation group for variable rate mortgage holders? The current situation is patently unfair. Surely variable rate mortgage holders should be banding together to ensure their collective voice is heard. Given the numbers that would be a powerful lobby group.
 
@bdecuc

Its called 'another' bank - but then the CB would impose higher capital requirements.

The Banks simply raise the SVR because they can. They are constrained with a truckload of trackers (despite availing of seriously cheap funds) so go to whom can be forced to pay - depositors have already been statutorily deprived by penal taxes and the Banks have lowered these rates so low that the only additional thing they can do is charge - which they might do.

Given our track record on protests - the Banks have nothing at all to fear, execpt competition. Thats now been so stifled that there is no danger from that quarter.

Unless of course we were to become imaginative and have a second building society and create an ethical brand - would we get support - yes after it was a success.
 
Yes I accept what you are saying there WizardDR. And definitely a normalising of the banking market through improving the financial positions of the banks, dealing in some way with the tracker mortgage issue and introducing competition as quickly as possible is ultimately the way the situation will be resolved. However that’s a medium to long term solution.

Right now though the Government is the biggest shareholder in the commercial banking sector surely? That’s completely aside from the fact that the Minister for Finance even in a normalised market has policy responsibility for the sector anyway. That puts the situation directly within the influence of us – the taxpayer/mortgage holder. The Government can’t hide behind commercial banks being private enterprises in this case.

Any Government would be running scared of 300,000 people saying in one voice – fix this mess in some way other than just forcing us, the variable mortgage holder, pay for it – or else. I mean look at Brendan Burgess’s campaign about the PTSB variable rate (on this site!) and the outcome that PTSB have brought their variable rate back into the fold. I don’t believe that campaign didn’t influence the ultimate outcome.

If the Government doesn’t feel pressure on this then variable rate mortgage holders will be forced to underwrite this sorry mess for years to come. Are 300,000 mortgage holders and their family’s seriously going to sit around twiddling their thumbs while being taken advantage of in this way?

Well I for one am going to make my feelings known to my local representatives and to the Minister for Finance. If there is any other way I can find to play my part in giving a helping hand to an organised campaign on this then I surely will.

(Sorry I didn't mean to hijack the thread with that point - I know it isn't exactly relevant to the OP)
 
@bdecuc
With SVR rising indiscriminately in the last while, the future issue is what will happen then when ECB rates inevitably rise.

I forecast that the Banks will raise SVR in line with ECB as well.

So if this isn't tackled - and the PTSB campaign was good but they were also an outlier - you have the dilemma that the State want the banks to get profitable - and public reaction seems irrelevant.
 
@bdecuc

So who do you propose to pay for it? The government, i.e. the taxpayer, many of whom have no mortgages? As WizardDr, those of us with no mortgages have already been hit with heavy DIRT increases, lower deposit rates and bank charges.
 
burmo said:
@bdecuc

So who do you propose to pay for it? The government, i.e. the taxpayer, many of whom have no mortgages? As WizardDr, those of us with no mortgages have already been hit with heavy DIRT increases, lower deposit rates and bank charges.
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burmo

Sure look I know no-one wants to pay for it. No-one ever does.

But it’s a significant issue for society. You surely can’t sustain a situation where 30-40% of mortgage holders are significantly underwriting all the others. Yeah you might get away with that if the difference in rate is not too large or it’s over a short period or if those paying it can afford it. But we are at the stage now where the gap is already too big and is only threatening to increase.

Let’s face it. Our mortgages are too large a part of our lives and impact too much on the well-being of our families to allow such significant inequality to go unchecked.

Who pays? I don’t know. But I do think it will have to be a matter for Government to address.
 
Pope John 11 said:
People keep saying that the banks are loosing out. No, the variable rate mortgage holders are subsidising these trackers. Banks do not loose out.
Click to expand...

I said the banks are loosing on the trackers....

Pope John 11 said:
And those who may eventually get debt forgiveness.....guess who pays

And those who walk away from negative equity homes.....guess who pays

And those who walk from credit card debts etc...... guess who pays

You've got it in one, variable mortgage holders.
Click to expand...

The taxpayer will have to pay because the banks will need to be recapitalized, the gap would be far to big to be plugged by an interest rate increase and the gap will have to be plugged quickly so will be no time to wait for the variable mortgages to be paid back either.
 
I don't understand this theory that banks are losing money on trackers.

I thought banks could borrow from the ECB at the ECB refi rate. This is the same ECB rate that trackers are based on.

In any case, EURBOR is currently lower than the ECB refi rate.

Either rate is substantially lower than either tracker or SVR customers are paying.

Can't post links yet but a quick Google will confirm.
 
Loans from the CB are just one part of a bank's liabilities.

Their main liability is deposits.


Deposits can cost up to 3%.
 
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