Interest Rate rises ??

Hi pinsters,

Im just looking for peoples opinions on what might happen regarding the rise of mortgage interest rates over the next few years. i.e… How regularly… How are they risen in, .5 increments or could they jump 2% in one go

I know no one can safely predict the future but if anybody has a opinion it might help.

Ive gathered from browsing the web rates could go up to 7 - 9 % so im trying to stress test for that.

Sorry if this has been done to death already.

It’s a tricky question and one that’s key to the recovery (or less hard landing) of the Irish economy to some degree.

Eurozone inflation has hit 2.4% Analysts are saying that the ECB will see this as ‘just’ commodity inflation and stand pat. That’s all very well to say, but commodity inflation has a habit of feeding in to wage inflation. I doubt rises in German inflation expectations can be ignored. And they didn’t ignore it the last time…

I think the most they’ll move is 0.5% at a time, but the moves might be reasonably close together for a while. 7-9% is a reasonably expectation for mortgage rates as a stress test. Some would say more, the banks all say less!

25bps at a time is significantly more likely than any 50bps moves.
Bernanke won’t get a 3rd QE program going easing global inflationary pressures. Combined with the EU needing a EUR/USD much closer to parity, I still say no rate rise in 2011, and probably 2012 too.
The ECB will talk hawkish about inflationary this and that, but there’s no hike coming.

Much as the ECB would like to ignore it (at least for a while), they know they have to tackle inflation from any source. If you have one part of the economy inflating at 5% (e.g energy or commodities), you have to have some other part below 2% to keep the overall number at the target.

And it is almost impossible to over-estimate the german obsession with inflation or even individual price increase numbers. Regular newspapers here carry stories of 0.3% price increase of whatever good in the last two months, and usually follow that with price comparisons of where you can at least get the cheapest stuff on offer.

The ECB will (if and when it has to) raise interest rates at a rate or 0.25% at a time and keep increasing at that rate on a quarterly basis while monitoring the effect of the increase across the Eurozone. The ECB will do this baring in mind which countries are insolvent and which arent i.e they will pay close attention to Greece, Ireland, Portugal, Italy etc to see what effect rate increases are having on these countries because they dont want them coming back with the begging bowl.
If the interest rate increase has no effect on curbing inflation they will increase at a faster beat e.g. monthly but I dont think they will throw 0.5% rate increases at us because the economies in trouble already would implode and there would be trouble in Europe (well everywhere except Ireland because we’re too ***ing docile to do riots ‘bend over further there Paddy’).

7-9% is a reasonable stress test.

6% is a likely long term average.

Bear in mind all previous replies to your post refer to ECB interest rate increases.

There is a secondary type of increase, the banks margin. As trackers are no longer available you’d be talking variable. Banks need to increase margins significantly to cover bad debts and the increased costs of borrowing on the market. They’re likely to increase rates more aggressively than the ECB. 0.5% at a time.

There’s possibly about 2% increases for banks margin.
There’s possibly 4% increases for ECB rate (1% to 5%).
No necessarily 6% in total though as ECB increases will decrease banks margin to a certain extent.

Well the market now implies that they will raise 125bps by end Q1 next year.

Personally I think the market has over-egged Trichets hawkish comments at the last meeting. He himself even tried to tone them down in an interview a week later. In any case, with everyone piling into short dated bunds and CHF etc as a safe haven last year, its natural that you would have some form of capitulation at some point when things settled down.

Things to be mindful of this year though
1 ] Trichet goes in October. He will most likely be replaced with Weber (German and Hawkish…he cld get trigger happy)…but…

2 ] Inflation is running a bit above the ECBs comfort zone of 2%…However wage inflation is a pathetic 0.8%.
3 ] The chances of the ECB hiking while the Sovereign Crisis is still vulnerable to crisis at any point, would seem a bit silly

So my own personal opinion is that if they raise it will not be much and that the recent change in hiking sentiment revolves around a massive unwind of the safe-haven trades (pushing short dated interest rates lower) of last year as much as anything else
To hike while the Sovereign mess is still very vulnerable could look very stupid a few weeks later.
Think Trichet continues talking a big game to control expectations…but the chances that they raise 125bps over 12 months and mess up all the good work so far, I find very hard to believe!

online.wsj.com/article/BT-CO-201 … 10563.html

thisismoney.co.uk/interest-rates

oakstonecompany.wordpress.com/20 … est-rates/

Consensus seems to be that towards end of year interest rate increase is likely but that increases are gradual. I suppose lesson of last couple of years is to treat all predictions as just that. If you can get a decent five year fixed rate then that might give some comfort.

Question is going to be what is an acceptable level of inflation and at what point do we have wage inflation.

I guess my question was answered this morning

independent.ie/national-news/mortgage-rates-to-rise-1pc-2520922.html

Well my answer was with respect to European base rates, not the whims of an Irish bank; other answers probably similarly intentioned.
And today’s info from Trichet strengthened my own ECB position.

The fact that some banks have withdrawn fixed rate mortgages completely is a big warning sign that rates are going increase significantly.

If the irish banks are going to be recapitalised with IMF money charging 6% then they will have to pass on that to their borrowers. I would expect many mortgages to be around 6% by the end of the year.

And also that they have no idea what level they will go to and for how long…

Thats the most ironic thing!

If inflation is going to come from somewhere,
it will be from the core states of the euro area,
as the peripheral states will be suffering deflation with all their contractionary budgets.

The credit spread charged by the markets on borrowing will also be heaviest for the peripheral states,
leading to less borrowing - so it will increase the rate of deflation further in these states.
Meanwhile, in the core countries, where inflation threats are greatest, the low credit spreads will actually make it
easier for Governments to borrow and increase inflationary pressures greater in those states.

However, the one advantage the EU has is that the peripheral countries aren’t really important,
the Irish economy now account for about 0.7% of the euro area, Greece and Portugal are hardly massive economies,
so really its only Spain and Italy they should give a damn about.

We don’t run Government policy just to suit the Blasket Islands at the expense of Mainland Ireland, so why should Europe care about Ireland?
I see rates increasing relatively quickly because unlike the late nineties when the emergence of China and India kept inflation down,
inflation in the BRIC countries is on the way up because of the collapsing dollar and its effect on commodity prices!

rte.ie/news/2011/0209/mortgage-business.html

Mortgage rates were on average 5.5%+ before the bank guarantee in 2008. They will have to move towards that level this year given that there are an upcoming number of tranches of the IMF/EU bailout due to be drawn down at this 5.5% rate or (possibly much) higher in the coming months.

[Hawk] Weber No Longer Seeking ECB Role

online.wsj.com/article/SB1000142 … TopStories