The lower rates go, the worse it gets (for some)

There are winners and losers in every rate cut, so literally somebody, somewhere loses out every time, this can be the bank, a borrower or a saver. To a degree Jean Claude Trichet uses the euphemism ‘rate cut’ in place of the more accurate ghetto expression ‘bitch I’ll cut you!’, but ultimately there are those who get hurt.

Who exactly? Well, people on fixed rates who may want to break them are made worse off, people who are saving generally are made worse off too. And banks themselves are also hit on their margins when rates drop.

How does a lower rate affect these three situations?

Breaking a fixed rate: If you are on a fixed rate and want to break it then there is a breakage fee, this is one of the times under the Consumer Credit Act 1995 where a bank can hit you with fees for early redemption or changing to another rate, the examples we are seeing are all c. €20,000 so it’s serious …

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Derek Braun vs David Cantwell on the Late Late show

Pat Kenny had two well known commentators on the Late Late show on Friday, David Cantwell a director with the largest new homes estate agent Hooke & MacDonald and Derek Braun author of ‘Irelands House Party’. The section on the show had some interesting debate and both sides had some valid points, some things however were not mentioned – for instance – Braun pointed out that huge profits were made on a certain south side development (and nobody doubts that) but there was no mention of the taxation that is paid via contributions to local councils, VAT, other taxation, paying bubble wages etc.

Cantwell spoke about property prices being at their bottom (granted this is only in his opinion) when considering the supply and other economic factors they clearly cannot be, as well as failing to mention some of the common sense home truths which Braun used to shoot down his arguments.

The only issue I have is that of all the developers I know only one isn’t going into liquidation, in a

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Best deposit rates in the Irish market April 2009

Here is a list of the deposit products in Ireland with the highest interest rates at present.

Demand account: Anglo premium demand 4.75% 7 day notice: Anglo 2% 21 day notice: PTsb 21 day saver 4% 1 month: Investec 3.25% 75 days: PTsb 3.6% 6 month: Investec 4.25% 1 year: Anglo 4.9% 18 month: EBS 6%

If you want to consider your deposit options you can contact us on 01 6790990, although we don’t have deposit agencies with every lender listed in the top position, so in some cases we’ll have to send you direct but in any case we can still help you choose the best deal on the market. All rates are up to date as of 20th of April 09′ and are subject to change.

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The ‘Crunch’ is nearly over, but what lies in its wake?

The Euribor 3 month money is at 2.822% which means the margin on interbank money is now at 0.322% (the current base rate is 2.5%) over the base. The Credit Crunch by definition is a sudden reduction in the general availability of loans (or credit) or a sudden tightening of the conditions required to obtain a loan from the banks. One of the biggest hallmarks of the whole financial crisis was the disjointed relationship of the Euribor from the ECB.

Traditionally the Euribor (we are talking about the 3 month money generally) trailed the ECB at c. 0.1 to 0.2%, so if the ECB base rate was 4% then the Euribor was (approximately) 4.13% or something like that. In July of 2007 this all changed and margins on interbank lending shot through the roof, to such an extent that literally thousands of loans in Ireland alone turned into negative …

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The 'Crunch' is nearly over, but what lies in its wake?

The Euribor 3 month money is at 2.822% which means the margin on interbank money is now at 0.322% (the current base rate is 2.5%) over the base. The Credit Crunch by definition is a sudden reduction in the general availability of loans (or credit) or a sudden tightening of the conditions required to obtain a loan from the banks. One of the biggest hallmarks of the whole financial crisis was the disjointed relationship of the Euribor from the ECB.

Traditionally the Euribor (we are talking about the 3 month money generally) trailed the ECB at c. 0.1 to 0.2%, so if the ECB base rate was 4% then the Euribor was (approximately) 4.13% or something like that. In July of 2007 this all changed and margins on interbank lending shot through the roof, to such an extent that literally thousands of loans in Ireland alone turned into negative …

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What stimulus is there after a 0% rate?

There are generally two strands to monetary stimulus, firstly there are interest rates, and then there is the actual money supply. We’ll talk about both of them here and what will mean for consumers.

Interest rate drops drive money into an economy in a few different ways, obvious to most is that the cost of borrowing comes down, so if a company has to borrow to hire people they can do so, people need less to service debts which increases their disposable income and that puts more money into circulation. The other thing that happens is that bank deposits look less attractive, interest rates dropping actually cause rate compression, something we discussed here before, and that means money (especially at a 0% interest rate) will not sit on deposit and will instead move to corporate bonds which will thus be a way of extending credit to companies and they can finance projects.

In the past many would ‘fly to quality’ …

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How falling interest rates hurt banks during a liquidity crisis

The falling interest rates are heralded by consumers of Irish mortgage companies as a godsend – well, for the clients of the Irish banks who actually pass on the full rate cuts that is! However, at the same time it creates a rate compression which damages the bank and this is what we will consider in this article.

Banks have two sides to the operation roughly speaking, on one side there is the lending function which we are all aware of, mortgages, car loans, personal loans etc. on the other side is the deposit taking function which provides part of the money they lend out. There is of course the interbank market which supplements (and often surpasses) deposit funds for lending, but to keep things simple we will focus on a world where deposits roughly equal lending.

When

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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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Rate Expectations

In the Book Great Expectations by Charles Dickens we saw Pip help out an escaped convict, one who had done some wrong, the convict later becomes an anonymous benefactor of Pip’s helping him lead the life of a gentleman and Pip becomes totally removed from the old life of poverty he lead, only to one day find out who his invisible helper was, it shakes him to the core.

There is something in this story that hit me today hearing about the Fed rate cut to a base of 1% and current public sentiment towards the market. The market is like the convict who had done something wrong in the past and who later is the benefactor. It is easy to look at the mistakes made by the finance industry, and alarmingly easy to funnel all wrongs towards it, …

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Debt Reduction Blog. What happens if you miss mortgage payments? August 16th 2008

A question we are sometimes asked is ‘what do we do if rates rise and we find it hard to make payments?’. The root of the answer lies in not getting into debt you may not be able to service in the first place, having said that the home of your dreams is not always going to be sold at a dream price and many people are feeling an increasing debt burden in 2008. This is down to a slowing economy, redundancies, increased margins on loans, and ECB rate increases.

Today’s post will have some simple tips about money management and ways to avoid bad debt. For a start you need to get a piece of paper and write down guaranteed outgoings, such as mortgages, personal loans, credit cards, groceries etc. If there is a hierarchy in what requires priority food comes first then further down the line debts, for debts (if you ever have to make that choice of which one not to pay) make sure you pay your mortgage first, and personal loans further down the line.

However, …

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