# As tracker rates go up, will Variable stabilize ?



## JonnyCage (20 Apr 2011)

Hi all,

I am on a dreaded EBS Variable that looks like it is just going to keep going up ;(
Ok, so what I am wondering is as ECB raise rates and therefore tracker rates go up, will it always be the case that the variable will go up ??

Does the increase in ECB rates actually mean that banks will start to recuperate some money from trackers, and therefore the variable rate will stabilize ??

and maybe even get to an on par situation with the current trackers ??

Thanks for the help !!!


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## aristotle (20 Apr 2011)

I dont think there has ever been a case when trackers went up and variables did not? Even when banks were flush with money they still increased variables.

Banks borrow money on another market which I guess would also increase if the ECB rate increased.

Basically, I would expect variables to continue to increase.


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## David Quinn (20 Apr 2011)

Unfortunately not Jonny. Given that our banks are effectively out of the bond markets at the moment, it will be interesting to see how ECB rate rises affect the rates at which the banks and Irish Government borrow. 

Those rates are very much dependent on the credit rating of the sovereign so this will have a more immediate impact on your variable rate. Until the Irish Credit rating improves, banks will continue to make losses on trackers, and the variable rate holders will have to subsidise some of this. The ECB rate rise doesn't really help the bank recoup anything on tracker rates. The only way banks can reduce losses on trackers is to convince tracker holders to pay off their debt, or for the bank to borrow at rates lower than the 'ECB + Margin' tracker rate. This is very unlikely in the short to medium term, so the differential between tracker and variable rates is going to continue.


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## JonnyCage (21 Apr 2011)

I obviously am gutted being on a variable. and hind sight is of course a killer here. BUT THEN I ask myself the question.. WHY EVER would anyone pick a variable over a tracker ??? There is only negatives involved in this from the looks of things. 

I mean if i had of really thought about it even 4 years ago when getting my mortgage; do i want the decision making to be with Irish Banks(corrupt), then go with variable. 

If I want Germany to decide my rate go with tracker.

WHY WOULD ANYONE EVER HAVE GONE WITH VARIABLE RATE if tracker was an option ?
I did do some research at the time of choosing and there was never any clear recommendations given to DEFINITELY go with tracker

just ranting, but comments please


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## Sunny (21 Apr 2011)

AIB have said they won't pass this increase on to variable rate customers. YET! Not sure about the other banks.


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## NorfBank (21 Apr 2011)

JonnyCage said:


> I did do some research at the time of choosing and there was never any clear recommendations given to DEFINITELY go with tracker
> 
> just ranting, but comments please



Just out of interest, did you source the mortgage yourself or use a broker?

I had only one client who took the variable over the recommended tracker (there's always one). It was a cheap discounted variable rate, his view was that he could switch when the discounted rate ended onto a tracker. This was when most of the lenders were allowing free switches. I do wonder how he got on, this was in 2007.

Some people just won't listen unfortunately.


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## aristotle (21 Apr 2011)

JonnyCage said:


> WHY WOULD ANYONE EVER HAVE GONE WITH VARIABLE RATE if tracker was an option ?


 
- People were lazy and didn't bother doing research off organising a transfer of a mortgage, times were good, house prices were soaring and people felt "rich" - so why bother?
- People didnt have enough equity in their house so they felt the tracker may not have been any better e.g. a lot of trackers were Loan-to-value

There was reason to choose a variable over a tracker from what I see.


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## DerKaiser (21 Apr 2011)

JonnyCage said:


> I did do some research at the time of choosing and there was never any clear recommendations given to DEFINITELY go with tracker
> 
> just ranting, but comments please


 
I wouldn't beat yourself over it.  Hindsight, as the name suggests, is not available to us when we make decisions.

Most people thought Irish banks were brilliant and the country was brilliant 4 or 5 years ago.  

Some were well informed and thought through it rationally and knew better, but I'm afraid the majority of us did not fall into this category. 

I am absolutely certain that it's possible in about 5-10 years from now there will come a point when variable rates could be below trackers. 

How?

If serious inflation ever kicks in ECB interest rates could go to rates such as 7-8% pushing trackers on to 9% or 10%.  If the banks are mainly funded by deposits at that stage they might only pay 4% or 5% in deposits rates and could actually afford to to lend the money they have on deposit at rates lower than ECB.

The majority of "know it alls" who tell you that you should have known better 4 years ago and got a tracker (because they knew banks were corrupt and tracker margins were too tight!!) live in their status quo world where what's right now and what was right in the past will always be right. That's the kind of thinking that led people to believe the boom would last forever.

I do believe you would be better off on a tracker but, believe me, in 3 years time everyone on trackers and variables will be branded idiots for not having the foresight to have fixed their mortgage rates for 10 years in 2010!


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## aristotle (21 Apr 2011)

DerKaiser said:


> The majority of "know it alls" who tell you that you should have known better 4 years ago and got a tracker (because they knew banks were corrupt and tracker margins were too tight!!)


 
No, its because they knew it would save them money on their repayments.



DerKaiser said:


> I do believe you would be better off on a tracker but, believe me, in 3 years time everyone on trackers and variables will be branded idiots for not having the foresight to have fixed their mortgage rates for 10 years in 2010!


 
And all said without a hint of "know it all"


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## Sunny (21 Apr 2011)

DerKaiser said:


> If serious inflation ever kicks in ECB interest rates could go to rates such as 7-8% pushing trackers on to 9% or 10%. If the banks are mainly funded by deposits at that stage they might only pay 4% or 5% in deposits rates and could actually afford to to lend the money they have on deposit at rates lower than ECB.


 
If serious inflation kicks in that brings ECB rates up to 7-8%, then the banks will be offering way more than 4-5% on deposits. Otherwise people don't save. Especially in a high inflation environment. You will never see variable rate mortgages less than low margin trackers.


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## DerKaiser (21 Apr 2011)

aristotle said:


> No, its because they knew it would save them money on their repayments.


 
Also said without a hint of "know it all" 

I took a tracker out in 2007 and I'll just stick with it, but I'm sure with perfect hindsight in 2027 I'll come up with some combination of tracker/fixed/variable combinations that would have made me better off (aside from the lunacy of actually buying a house in 2007 )


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## DerKaiser (21 Apr 2011)

Sunny said:


> If serious inflation kicks in that brings ECB rates up to 7-8%, then the banks will be offering way more than 4-5% on deposits. Otherwise people don't save. Especially in a high inflation environment. You will never see variable rate mortgages less than low margin trackers.


 
You might be right, anything can happen though


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## JonnyCage (21 Apr 2011)

so i am DOOMED 

ah well i can handle the current repayments. so not too stressed. just could do with an extra 200-300 euro a month for buying other useless cr*p

but great answers from all; and I especially enjoy DerKaiser's 
hopefully that is the future of banking and people will be jealous of my variable one day

I can dream cant I !!!


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## demoivre (21 Apr 2011)

Sunny said:


> AIB have said they won't pass this increase on to variable rate customers. YET! Not sure about the other banks.



According to today's Independent KBC are raising variable rates by 0.4%.


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## Knuttell (21 Apr 2011)

demoivre said:


> According to today's Independent KBC are raising variable rates by 0.4%.



Do you have a link to that story?I had a look at the Irish Independent web site and its not mentioned there?


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## Panacea (21 Apr 2011)

DerKaiser said:


> If serious inflation ever kicks in ECB interest rates could go to rates such as 7-8% pushing trackers on to 9% or 10%.


 
The implicit tracker in the example above is on *ECB +2%to3% ... .this would be an atrocious tracker rate* and it would be difficult to envisage a situation whereby variable rates will ever be below the rates most of the more advantageous trackers were negotiated at ie ECB+0.5%to0.7%.

If euro falls apart ECB rate and ECB rate no longer exists people will definitely have an interesting situtation to contend with.

As for 5 year to 10 year fixed I guess no one could rule out the possibility that there may well be a situation in the future whereby a person will have fixed their rate for between 5 and 10 years at a lower cost than people who are on even the best of trackers ..... although this would take significant ongoing inflationary interest rate hikes which would typically be priced in to the longer term rates as interest rates increase.


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