You could practically hear the collective sigh or relief from mortgage holders after the European Central Bank (ECB) dropped its interbank rate by a historic 0.75 per cent.
As we now know, a half-dozen of our primary mortgage lenders couldn’t wait to be the first to announce that they would be passing the rate reduction onto their tracker and standard variable rate customers.
With most home loan rates now back around the 4.5 per cent to five per cent level and likely to fall even further; some relatively new property owners are typically seeing their monthly repayments come down by €300 to €400 a month.
A €300,000 loan repayment (over 30 years) that may have gone up to €1,750 a month will hopefully have fallen back to about €1,350 once this last cut is factored in.
This kind of savings, along with lower petrol, energy and food costs should help everyone meet the many increases included in the Budget increases (income levies, new parking charges, adjustments to early child and older child benefits and the like).
But, there is a ‘but’ to be referenced in all of this. There is less optimism that lower interest rates will stem the corporate balance sheet problems that have been caused by the credit crunch.
Why? Well, until their loans and overdrafts are reinstated, many companies will remain under intense pressure all the way up and down the supplier chain.
The hope is that the impact of lower rates will happen soon enough to avoid the needless loss of jobs at companies that were only suffering from the capital shortage, and not because they were insolvent.
For those people in secure employment, the mortgage savings mean that they may not feel so compelled to cut out even fairly ordinary purchases that they really can afford. i.e. a meal out, a hair do, a night at the movies, etc.
What cannot be argued with is the level of panic that has clearly set in across all consumer markets, which makes these lower interest rates music to the ears of local businesses throughout Waterford and beyond.
Even though the dramatic rate fall is indicative of the wider economic slowdown, people who have more than just mortgage debt to worry about may, if they afford it, use the lower rates to clear their overdraft or personal loan balances faster.
You can do this by simply asking your lender not to reduce your monthly repayment in line with the rate fall.
For example, The Halifax, which is undergoing a mini-rate war with AIB, was the first finance house to drop their fixed car and personal loan rates – starting at 7.5 per cent APR for loans of between €25,000 and €50,000 up to 9.6 per cent for smallest sums of €2,500 to €4,500.
However, canny rate play won’t work with credit card debt. The Irish credit card companies didn’t raise all their credit rates across the board when the ECB started raising rates about two and half years ago. Instead they mainly increased the rate they charge to withdraw cash with a card.
Cash withdrawal transactions started rising as price inflation took hold last year and many people found it increasingly difficult to make their salaries stretch to the end of the month.
The credit card companies were quick enough to exploit this cash deficit by steadily raising the cash withdrawal charge, some more than doubling or nearly trebling it.
AIB’s headline ‘Click’ credit card charges 8.5 per cent interest on purchases, but a whopping 22.9 per cent on cash withdrawals; Bank of Ireland’s lowest card purchase rate of 9.5 per cent is dwarfed by its cash withdrawal rate of 19.9 per cent.
Several columns ago, I suggested that anyone with some savings should try to lock into the best of the fixed savings rates on the market, especially once the government’s 100 per cent deposit guarantee was put in place. You shouldn’t wait much longer to do so.
Most of the higher demand deposit and regular savings rates of a few months ago have fallen in recent weeks: in some cases, as much as 0.5 per cent or 0.75 per cent.
If rates continue to go down – and it looks like they will at least into early next year as the Central Banks of the world try to do everything to get economies moving again, pensioners, who need to boost their fixed incomes, will be hit hardest.
Banks like Anglo Irish and Investec (a UK-regulated bank and not under the Irish government guarantee scheme) offer the best 12 month fixed rates at six per cent and 6.5 per cent for sums of up to €100,000.
But savers need to shop around to maximise not just the money they can tie up, but the money they need to keep on demand – or shorter fixed periods.
Aside from checking the ‘best buy’ rates in the national newspapers you should keep an eye on the rate changes that are updated on www.irishdeposits.ie.