Mortgage cuts are nearing

The anticipation of cuts in mortgage rates has been increased. Ulster Bank recently stunned the mortgage market with the first cut in its variable rate in more than a year. This recent decrease in its variable rates will increase savings for first time buyers. According to the Independent the typical first time buyer will be saving around €50 a month.

Tracker and fixed mortgage rates are also supposed to fall. There are increasing expectations that the European Central Bank (ECB) will also cut key rates. Cutting key rates will allow banks to reprice their mortgage books. Mortgage rates are being cut in response to weak growth within the Eurozone and inflation declining.

As of yesterday, the European Commission lowered its forecast for growth again. The lowering of growth forecasts contributes to greater pressure on the ECB to cut interest rates it charges banks.

Ulster bank is dropping one of its key variable rates by .4%. The new key variable rate is defined as 3.9% for those whose loan is less than 90% of the properties value. This has a huge impact …

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Why a rate cut is now inevitable

The ECB generally maintain that they are there to control inflation, normally we interpret this as ensuring that prices don’t get out of hand, or shoot up too quickly and indeed that is generally what rate changes are for, rates are raised to control price inflation. However, when the inverse happens (deflation or rapidly falling inflation) they will cut rates to stimulate the economy.

Today the treasury briefings put the flash estimate of inflation as being 1.6% while estimates were that it would be 1.8% which means that we are witnessing less inflation than expected and at a pace much faster than expected, if the ECB want to maintain inflation at ‘near but just below’ 2% then they have to reverse this trend and fast so there is strong likelihood that we will see a rate cut this week in order to achieve this (or at least work towards it!).

The Zero Interest Rate Policy (ZIRP) being pursued in the USA may come to our shores, the UK is already contemplating …

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ECB cuts rates to 2.5% – tracker mortgage interest rates benefit.

Tracker mortgages are a mortgage that is tied to some form of base, be it the ECB base rate or the Euribor, in residential lending it tends to be the ECB in commercial it tends to be the Euribor. Today interest rates were reduced by a further 0.75% giving a new base rate of 2.5%, which is the lowest it has been since March of 2006,the Euribor is now at 3.743% and will see the base rate drop filter through in the coming days.

Commercial loans tend to follow the Euribor, specifically the 3 month money which banks actually tend to use to finance most of their operations. The way that banks operate is to sell long term but finance short term. This is where they create their margin and its based on the yield curve, part of the problem in the last 12 months was a yield curve inversion which made lending difficult and was a …

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