This is more speculation than anything else but do you see the margin of interest rates over the ECB rates reducing over the coming years, in particular as the ECB rate starts to increase?
At the moment, the cheapest residential mortgage available appears to be 3.85% with KBC – which is a 3.6% margin over the ECB rate of 0.25%.
In contrast, the UK’s cheapest residential mortgage available is 1.99% with HSBC – which is a 1.49% margin over the Bank of England Base rate of 0.5%.
It would be reasonable to assume that, sometime over the next 5-10 years, the ECB rate will revert to somewhere closer to the long term average, which I believe is somewhere around 4%.
With a 4% ECB rate, I find it highly unlikely that there will still be a 3.6% margin on residential mortgages giving a mortgage rate of 7.6%.
In my opinion, a 4% ECB rate will only be put in place when the economy is well out of recession. By that point, I suspect the banks will have recovered a lot of their losses and had a lot of their tracker mortgage book written down (meaning the SVR rates don’t need to subsidise the loss making mortgages to the same extent).
I don’t see rates going as low as NIB’s past offering of 0.5% over ECB but surely the margin will come down closer to, possibly, 2%.
Believe it or not, in the UK, there were actually mortgages offered during the boom times that tracked under the Bank of England base rate (I believe the best buy was 0.69% under). I’m not sure what exactly is happening with those at the moment, I just know (as a programmer) that the banks systems had trouble when the Bank of England base rate dropped to 0.5% because it resulted in trying to calculate repayments based on negative interest rates.
I guess people are probably wondering why I’m questioning this at the moment. Personally, it’s because I’m trying to work out the long-term difference between buying a home in the north using a UK tracker mortgage (1.49% over base rate) and buying a home in the south using KBC’s 3.85% SVR.
I think that the Bank of England base rate will start rising long before the ECB rate, but that’s a whole different topic of conversation.
At the moment, the cheapest residential mortgage available appears to be 3.85% with KBC – which is a 3.6% margin over the ECB rate of 0.25%.
In contrast, the UK’s cheapest residential mortgage available is 1.99% with HSBC – which is a 1.49% margin over the Bank of England Base rate of 0.5%.
It would be reasonable to assume that, sometime over the next 5-10 years, the ECB rate will revert to somewhere closer to the long term average, which I believe is somewhere around 4%.
With a 4% ECB rate, I find it highly unlikely that there will still be a 3.6% margin on residential mortgages giving a mortgage rate of 7.6%.
In my opinion, a 4% ECB rate will only be put in place when the economy is well out of recession. By that point, I suspect the banks will have recovered a lot of their losses and had a lot of their tracker mortgage book written down (meaning the SVR rates don’t need to subsidise the loss making mortgages to the same extent).
I don’t see rates going as low as NIB’s past offering of 0.5% over ECB but surely the margin will come down closer to, possibly, 2%.
Believe it or not, in the UK, there were actually mortgages offered during the boom times that tracked under the Bank of England base rate (I believe the best buy was 0.69% under). I’m not sure what exactly is happening with those at the moment, I just know (as a programmer) that the banks systems had trouble when the Bank of England base rate dropped to 0.5% because it resulted in trying to calculate repayments based on negative interest rates.
I guess people are probably wondering why I’m questioning this at the moment. Personally, it’s because I’m trying to work out the long-term difference between buying a home in the north using a UK tracker mortgage (1.49% over base rate) and buying a home in the south using KBC’s 3.85% SVR.
I think that the Bank of England base rate will start rising long before the ECB rate, but that’s a whole different topic of conversation.