Will rates come down again in next 5 years?

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Nicetoknow

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I'm hearing phrases like 'the era of cheap money is gone'. Does that mean the recent ECB rate increases won't be reversed any time soon? And that a lot of us will roll off fixed rates into very different landscape?

I know no one has a crystal ball but I'm trying to figure out how urgent it is to get our mortgage balance down. Currently 4 years left on a 1.95 rate. Mortgage of 500,000.
 
I think that rates will start to come down, from Year 4 (having gone up further, between now and then).

The reason for my prediction is fairly simple, I expect a lot of counties to be in recession, so rate reductions will be needed, to help kickstart various economies.

Don't expect the rates to drop quickly though, the ECB is much faster at pulling the handbrake, then putting their foot down on the gas pedal ;)
 
Nicetoknow said:
Currently 4 years left on a 1.95 rate.
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I was very surprised at the time when any lender offered sub-2% credit secured on Irish residential property for a ten-year term.

It didn't last long, and I would be even more surprised if it's on offer again from any lender when your mortgage term is up.
 
The current rates are still very low historically. So while they will go higher in the short term, nothing to say that they will get down lower than they are now in the near future. And then there's the difference between ECB rate and bank rates on offer.
 
It's very unlikely we'll have another decade soon where monetary policy rates spend a most of the time at zero. So yes the really cheap money is over. On the plus point you have locked in at 1.95%. that's pretty much as low as you could have gotten in recent years

The question is how bad will things get. ECB have talked about a neutral rate - their middle of the range/Goldilocks rate - there was some talk that this was 2%.

www.reuters.com

Explainer: Can the ECB really stop at the 'neutral' rate?

As the European Central Bank raises interest rates to control inflation, a key debate is whether it can stop at a so-called 'neutral' level or whether it would still need to cool the economy even though it is heading towards recession.
www.reuters.com www.reuters.com

So if things are to be believed, when all current inflation fighting is sorted you might expect ECB rates to be 2% +/- some range. The question then becomes how wide is that range and how will lenders react.

If the ECB says it's neutral rate is going to be 2% you would expect markets to price this in so it would be very hard to see swap rates ever being below 2% add in a bank margin and you could easily get to 4-6% range. Those are the kind of averages that existed here and across Europe before the last financial crises.

https://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=124.MIR.M.U2.B.A2C.AM.R.A.2250.EUR.N (static chart on the right)


Of course past performance is no guarantee of anything. aggravating factors like less competition might also play a part in the future.
 
OK thanks. A bit depressing but better to know than pretend to ourselves that our costs aren't going to go up in 4 years time.
 
If you can afford to same a little each month, then do so, and put it against the mortgage in 4 years time, when you fixed rate ends.

Also, don't forget, if we've a few more years of inflation, you'll likely get pay increases to help compensate.
 
The main ECB is expected to rise at least twice more, soon, from 2.5% to 3.5%.

It's difficult to say what will happen after that, as rising rates to combat inflation are balanced against a possibly weakening economy.




Could rates fall back later in 2023 / 2024, as inflation falls? Yes.

Do I see rates falling to zero%? No.

The ECB target is 2% price inflation.

Given a low, but positive real interest rate, I expect the "normal" ECB rate to be 3%.
 
Rates came down because of a global recession, so to hope rates reduce again may also mean another recession that will have wider economic impacts on individuals.

Rates are going up right now to curb inflation, we can't predict the state of the economy. As pointed out above there are a range outcomes and I'd consider 2% mortgage rates a low probability. At least you have 4 years to prepare for it, so now is the time to prepare for any additional shock either by overpaying mortgage or saving.

I do wonder if when rates stabilise banks will become a little more competitive given they will be able to make more money from mortgages than during the historic low interest rates.

My last comment based on the current discourse, there feels like there is an expectation the irish government will step in to support mortgage holders as rates continue to rise.
 
Nicetoknow said:
I know no one has a crystal ball but I'm trying to figure out how urgent it is to get our mortgage balance down. Currently 4 years left on a 1.95 rate. Mortgage of 500,000.
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Consider posting a thread about your situation in the Money Makeover forum. I see that you did one a few years ago, so it could be helpful if you did another one now.
 
Brendan Burgess said:
Avant allows borrowers to repay 10% (?) each year without penalty. The earlier you pay, the more interest you save.
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And the penalty capped at 2%, so if you currently have a fixed rate with Avant of more than 2%, then it's a no brainer to overpay by any amount.
 
Brendan Burgess said:
Hi Mr Earl

Why wait?

Avant allows borrowers to repay 10% (?) each year without penalty. The earlier you pay, the more interest you save.

Brendan
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Tickle said:
And the penalty capped at 2%, so if you currently have a fixed rate with Avant of more than 2%, then it's a no brainer to overpay by any amount.
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The 2% cap is likely irrelevant given the movement in funding rates. The OP can probably overpay without incurring a break fee.

However, it's not such a no brainer because of how low the mortgage is rates and how deposit rates by some banks have increased


The OP could be net better off putting in a savings account and waiting to overpay.

Better to save than to overpay a low fixed rate mortgage in some instances?

A recent post got me thinking are we close to the point where it makes financial sense to save rather than to pay down debt i.e., for some borrowers the return on savings (net of DIRT & PRSI) is greater than overpaying a fixed rate mortgage. There was a point in the past where this strategy...
www.askaboutmoney.com

Anything over 2.91% and the OP will likely be better saving.

Best Buy - Term Deposits (Fixed Lump Sum Savings)

Rates are frequently updated. Information last changed: 4 April 2024. Highest Term Deposit Rates 1 Year - BluOr (Direct) and A&G via Raisin - 3.50% 2 Years - BluOr (Direct) and TFBank via Raisin - 3.40% 3 Years - BluOr (Direct) - 3.30% 4 Years - TFBank via Raisin Bank - 3.25% 5 Years -...
www.askaboutmoney.com
 
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The best thing i done 10 months ago, was to pay to get out of a 4 year fixed green mortgage rate of 2% with Haven, and sign up for the fixed gor 10 years at 2.85%. I had a feelin things were going to be bad after the 4 year fixed. Since my decision the 10 year fixed jumped 1 %.
Stop belly aching and just fix. Peace of mind.
 
Paul F said:
The OP has 4 years left on a great rate (1.95%). If she broke and re-fixed with Avant she'd have to pay 3.95% (for a 7-year fix) or 4.3% (to fix for the entire remaining term of the mortgage).

Your "just fix" advice is too simplistic.
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thanks Paul F. yes i see your point, it does sound simplistic, i didnt mean to be-little the OPs predicament.

But last February i was in the same boat. I was in 3.5% mortgage with Haven. I paid 1200 to get out of it (as i has 2 years left), i went to Havens 2.15 %. Then a few weeks later, Haven, announced 2%, so i moved to that (no charge) for 4 years.
a Brother who is an economist, advised me, that the 4 years was too short, to break out of it (there was no fee) so by March i moved up to 2.85%, again at no charge. you could say i was on 4 different rates in the space of 2 months.
its the family home, young kids. i wanted to be sure for the next 10 years. the uncertainty, i couldnt live with it.
anyone in a similar situation of having a young family etc, and they want certainty, and they can afford the current fixed rate, should maybe thing about it.
 
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