Monday 20 February 2017

Young paying too high a price over the failure to act on interest rates

Published 08/04/2015 | 02:30

Michael Noonan and Enda Kenny
Michael Noonan and Enda Kenny

If interest rates are zero, why does a new mortgagee face an interest rate of between 4pc and 5pc? It must be frustrating for readers to hear financial experts reiterate constantly that "interest rates have never been lower" and yet they face significantly higher rates when they go to borrow money.

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It must also be deeply frustrating for the saver, who has a nest egg, to be told by the bank manager that the return on their life savings is now 0.25pc per annum, but their savings are being recycled by the bank and lent out to the first-time buyer for 4pc plus.

However, this mismatch between the cost of borrowing and the return to savings is the result of the on-going problem deep in the Irish banks. The nub of the problem is that the banks are losing money on tracker mortgages and they need to make this money back somewhere, so they are squeezing both savers and borrowers. The saver gets next to nothing and the new borrower pays not just the bank's margin on a new loan, but chips in to cover the cost of the subsidy that is the tracker mortgage.

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