Blog 01

Ceo of  David Kerr warns homeowners of the coming change in interest rates across Europe. The European central bank intends on standardizing these interest rates on homes across Europe. Consequently, this can see homeowners in Ireland with an additional 400 euros even on a fair 250,000 euro mortgage. 

In the past the ECB has actually been more concerned about deflation rather than inflation, the eurozone inflation had come under the 2% target consistently. Over the last few months, this perception of the economy has been flipped over.

The eurozone inflation rate has teetered over 7% a tremendous gap between the 2% target. Additionally, the UK inflation rate is expected to hit near 10% by year's end.

Why is the increase happening around the world?

As previously stated, global inflation seems to be on the increase. The main reason is the aftermath of Covid-19. Covid forced most industries to close their doors for the entirety of 2020 and into the year 2021. This threw the sensitive global supply chain into disarray. Once we saw the slow resurgence of these industries after covid supply chain bottlenecks emerged. Effectively putting pressure on pricing in a majority of industries.

Brexit is also a factor in these increases. Specifically, in the grocery area, imposing taxes on imports and exports make it difficult not to increase the prices of food and drink. Also, the sparseness of lorry drivers is effectively causing an increase in the cost of transport costs in Europe.

What is happening to my rates?

Daragh Cassidy, the head of communications at Bonkers was in contact with an official of the European central bank. Word is that frankfurt may choose to jolt interest rates up by nearly a percentage point. If inflation continues on an incline we may see these changes in the coming months.

Klaas Knot’s with the Dutch central bank has come out with comments that have sent shockwaves through financial markets. Said shockwaves caused an increase in the value of the euro and a decrease in the prices of the eurozone bond.  

Cassidy goes on to imply the result of the rate increases can cause those with variable rates and tracker mortgages to see an “instant increase” in repayments. Cassidy states “For someone with €200,000 remaining on their tracker mortgage over 20 years – currently paying a margin of 1 percent – they’re looking at an increase in repayments of around €45 a month if the ECB raises rates by 0.5 percent”.

With these mortgages not bringing large sums of money the effect doesn't seem as drastic. Let's say these rates decrease to what's considered normal. If the rate returns to 3% this 250,000 euro mortgage will end up owing over 400 extra euros a month. 

Separately, these rates could also end up causing an increase in borrowing costs for car loans or home improvement.

Cassidy also implied that the difference in mortgage rates in Ireland and the rest of the eurozone can give Irish lenders the opportunity to soak up the rate increase.

What rate should you choose?

The current theme for homeowners given the recent changes in interest rates may be a transition to fix rates. In recent years fixed rates have taken the majority with over 80% of mortgage customers selecting a fixed rate. Fixed rates offer homeowners reassurance and solidarity in times of uncertainty.

Contrarily those with a tracker, with the appeal of value, even in times of increased rates you still may be well off.

Who benefits from this change?

Those who are saving will not shy away from the sudden increase in rates, if anything they greet it with open arms. Currently, Irish households have roughly 136 billion euros on deposit. Most of it earned almost zero interest.

A result of this is some banks are charging negative interest, due to the negative overnight deposit rate.

Those involved with credit unions are also among those smiling in reaction to the increase in interest rates. These unions leave their member's savings in the hands of banks. As previously stated some banks are charging this negative interest rate. 

The Credit unions however are not in the best spirits. These increases in rates are forcing them to refuse some applicants because they're losing too much.

The housing market is relishing this sudden increase. Contrary to the homeowners who are now owing more in mortgage repayments. This will however prevent a housing bubble.