You just won’t really be able to overpay on a monthly basis. Maybe do it once a year.
I was forwarded a note by Goodbody Stockbrokers which I thought was interesting - I had not seen the analysis before.
Our prior research shows that the average funding cost for the banking sector is 40bps (including cashback cost), the average Opex is 105bps, the average impairment charge equates to 20bps and the capital charge is 50bps. This leaves a profit market of 47bps, equivalent to ROEs of <20%, similar to peers in Europe. As such, the key delta going forward we think will be opex (banks have cost save programmes in place) and the capital charge as new lending on lower RWAs and underwritten under the macro prudential rules replaces legacy loans with higher RWAs. On the latter, c.33% of mortgages have been underwritten under the macroprudential rules and is expected to climb to c.50% by end 2023 and then c.65% by end 2025. This could see rates drift down but ROEs remain unchanged.
Eamonn Hughes
Financials Analyst
This is my table from the above:
View attachment 5915
Brendan
That's a very long short term!I believe the levels of central bank rates we see today have always been intended as a short term policy on the back of the financial crisis.
Indeed. But the walk from policy rates to retail rates is not straightforward.Isn't it economic / monetary policy to raise interest rates to stabilize / decrease inflation? This will lead to rising mortgage rates.
That's a very long short term!
Official interest rates
The three official interest rates the ECB sets every six weeks as part of its monetary policy to steer the provision of liquidity to the banking sector.www.ecb.europa.eu
Indeed. But the walk from policy rates to retail rates is not straightforward.
Policy rates fell 400bps 2008 to 2011 but Irish banks didn't reduce non-tracker rates by nearly as much for various reasons.
Agreed. Am currently midway through switching to a 7 year fix @ Avant @ 1.95%. The overpayment facility means I should get it paid off in 7 years, and be sheltered against the risk of some of the mortgage rates that have been seen in the recent past. People forget very easily! 1.95% is a steal in historic terms, even if people have legitimate gripes when looking at current rates in other Eurozone countries.In an overall sense, rates should increase, but Ireland is an outlier in that our rates are higher already with competition driving them down.
Having said that, I’d have zero buyer’s regret fixing at circa 2% right now.
The highest rate reached in each year is shown below – based on the average rates of “representative building societies” from the Central Bank and the CSO
Irish Mortgage Interest Rates since 1975
Year Highest Mortgage Interest Rate 1975 12.5% 1976 13.95% 1977 13.96% 1978 14.15% 1979 14.15% 1980 14.15% 1981 16.25% 1982 16.25% 1983 13% 1984 11.75% 1985 13% 1986 12.5% 1987 12.5% 1988 9.25% 1989 11.4% 1990 12.37% 1991 11.95% 1992 13.99% 1993 13.99% 1994 7.49% 1995 7.00% 1996 6.75% 1997 6.9% 1998 5.85% 1999 5.6% 2000 6.09% 2001 6.9% 2002 4.7% 2003 4.2% 2004 3.49% 2005 3.65% 2006 4.86% 2007 5.46% 2008 5.86% 2009 4.16% 2010 4.02% 2011 4.42% 2012 4.33% 2103 4.38% 2014 4.2% 2015 4.05% 2016 3.61% 2017 3.44% 2018 3.21% 2019 3.02% 2020 2.92% 2021 2.8%
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