ECB Rate Increases 2019

E

e_drizzel

Registered User
Messages
28
Given the markets think the ECB will start increasing rates sometime in 2019 would it be wise to switch to a long term fixed rate before then?
 
Personally I'd switch now for 2% cashback and 1 year fixed, then look to lock in long terms in 2019. But bear in mind brexit is March 2019 and no one knows how a hard brexit will affect the markets.
 
e_drizzel said:
Given the markets think the ECB will start increasing rates sometime in 2019 would it be wise to switch to a long term fixed rate before then?
Click to expand...
That has been the general consensus since the start of this year, if not even earlier. With fixed rates so low (and lower than variable rates), and with the likelihood of increases next year, it makes a lot of sense to fix now. People should be smart about keeping some options open, though. Those who will be able to overpay should think about splitting between fixed & variable, or taking a mortgage out with the lenders that allow some overpayments off the fixed balance without any penalties (Ulster Bank, KBC, and BOI, in order of how flexible they are).
 
e_drizzel said:
Given the markets think the ECB will start increasing rates sometime in 2019 would it be wise to switch to a long term fixed rate before then?
Click to expand...

Normally the answer to this question is a simple no.

Only a fool thinks they can anticipate interest rates better than the bank.

However there are some very low fixed rates available at present and it is not unreasonable to assume that retail mortgage interest rates cannot be negative, thus making the risk unsymmetrical in favour of a fix. Meaning that if you fix at 2% and rates go to 0% you lose by 2%, if rates go to 5% you gain 3%

Cash back offers and the fact that breakout charges are legally regulated, also mean that fixing may be worth a punt.
 
How quick the Bank's can offload their non-performing loan portfolios will have a bigger impact on fixed & variable rate pricing than ECB rate rises in 2019 & 2020.
 
IMHO ... issues like Brexit / International trade barriers / ECB exiting QE , will all lead to a slow down in interest rate increases ...I think we won’t see any rapid rise in interest rates. When you think about it if the banks are now offering new lower fixed interest rates it means they anticipate central bank rates staying low for at least that time frame 2/3/5 years.
 
Agreed that any increase is likely to be slow when ecb starts to increase rates. On the when front they've pretty much said this won't be before this time next year. However, given how signposted the ECB has been about this you would expect longer-term rates to to tick up in advance of this. On the how much front I would have thought very slow. It's almost a symbolic gesture too mark the end of the crisis. However, European growth (at present) is still fragile. They won't want to damage that.

What really matters for us is how banks react to all this. I'd be surprised if much happens on the variable rate front before the ECB starts to raise rates. Almost all banks existing book is variable. The new business a lower variable rate would attract is likely to be nowhere near what they would lose in their existing loans. I would expect banks to absorb the first couple of rate increases given their current healthy variable rate margins. Put simply on thet PR front it's will be a lot easier for them to say they've taken some pain with the first few increases now it's borrowers time.

As for fixed rates where there has been some movement (dare I say competition) recently I would expect banks to eek out as much as they can. This is where a lot of new business had been transacted. The ability to differentiate between maturities means they can sign post increases if they want to (kind of like how all the budget details are leaked well in advance - by the time the pain comes you've been expecting it).

Based on all that I would (and have) followed others advice of picking the best mix of fixed rates versus overpayment options. I plan to review in September and see if it's worth incrementally breaking and refixing
 
cremeegg said:
I have liked your post assuming it is a joke.

If it isn't a joke it's still funny, just in a very different way.
Click to expand...

Ahhh, I was joking alright. That said my mortgage interest rate was 4% or more a some point in the past. So fixing at 2% for example mightn't be the worst idea.
But no i'm a procrastinator so I'll definitely stay on the tracker rate.
 
In theory you should never switch from a good tracker rate and let it run its full course. When ECB rates rise that should mean inflation / economic growth / wage rate inflation broadly speaking ...all of this means your mortgage cost should seem less as it is fixed to ECB + Margin so everything else should be getting relatively more expensive.
 
Codogly said:
if the banks are now offering new lower fixed interest rates it means they anticipate central bank rates staying low for at least that time frame 2/3/5 years
Click to expand...
Just to clear up a common misconception here.
The banks make absolutely no prediction / judgement call on where they think rates will be when the set fixed rates. They actually fix their funding in the market (they have to to meet accounting rules).

At the moment, banks can fix for 3 years at 0%.

Competition for market share is the only real driver of pricing right now.
 


What you're describing is the erosion of nominal debt. You should get the same result on all debt regardless of interest rate type.

The benefit of a tracker rate is that given the margins on other forms of mortgages you should pay less interest over the course of your mortgage with it. Admittedly fixed rates are a lot more competitive and perhaps it's not a dead cert as it use to be but I doubt you would get many suggesting it is time to swap products
 
RedOnion said:
The banks make absolutely no prediction / judgement call on where they think rates will be when the set fixed rates. They actually fix their funding in the market (they have to to meet accounting rules).
Click to expand...

This was clearly not the case when banks were offering tracker mortgages in the early 2000s
 
cremeegg said:
This was clearly not the case when banks were offering tracker mortgages in the early 2000s
Click to expand...
"fixed rates" was a key part of my post. Trackers are not fixed.

The mistake banks made in funding trackers was pricing at a margin over ECB when they were borrowing at EURIBOR, and assuming the difference would never be material. There had been limited difference between them for a long time, but when funding started to dry up in early 2007 the difference grew substantially. If you look at the limited cases where tracker products are still available in Europe, they are mainly a margin over EURIBOR (eg Finland).
 
You must log in or register to reply here.
Menu
Log in
Register