Today's topic may be a little contentious... In a surprise move yesterday Mario Draghi, the brand new ECB President, reduced interest rates and indications are that they may go lower again in the near future (he had been president for a mere 3 days to that point). The reduction was 0.25%, giving a new base rate of 1.25% (the same as it was back in the April-July 2011 period).
The question now is 'Will banks pass on the rate cut?' We are not talking about tracker mortgage holders who have that built into their contract, rather we are talking about Standard Variable Rate mortgage holders, all 250,000 of them.
If your instant response was 'yes of course' then think about some of these things first....
- In paying for bailouts the best way to get a return on our investment is to allow banks to charge more, the other things banks can do is drop deposit rates (not happening because they are already under funded via direct deposits) or fire a lot of staff (also a very harsh solution). Allowing them to charge more means giving them a chance at getting healthy again.
- The rates banks charge are totally disparate, look at AIB under charging (due to political pressure) customers with a rate of 3.34% - that is not a commercial rate, it's a give-away. At the same time PTSB (who did a better job of avoiding state support) are charging 6.05%. They will pass on the rate cut, but even at that they will be almost 2.5% more expensive than AIB.
- Why should a person get a rate cut if they didn't sign up for a tracker? Their product doesn't come with that guarantee. Isn't that the whole point of making adult decisions? If we are to break terms and conditions on variable rates in their favour, then why not have moves against fixed rates or trackers - who are effectively beneficiaries of variable rate hikes, remaining protected while some bear the brunt?
We think this will be a thought provoking topic, and look forward to your comments!
You can find Karl on Twitter @KarlDeeter
their blog is at http://www.mortgagebrokers.ie
Karl is the Operations and Compliance Manager at Irish Mortgage Brokers in Dublin 2, he is also a resident guest blogger here at MyHome.ie
