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Tuesday, 16th April 2024
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Borrowers advised to consider switching from variable to fixed loans Back  
While short-term interest rates seem to be heading southward at an alarming rate, the longer view may not be so bleak. According to ten of Ireland’s leading interest rate specialists, the next few months may represent a trough in interest rates and an opportunity for borrowers to switch between variable and fixed rate loans.
Borrowers should consider switching their loans from variable to fixed rates over the next few months, according to a survey in this month’s Finance magazine. The consensus view among Irish interest rate specialists has seen the majority advising borrowers to at least consider this possibility over the next few months.

Following international interest rate cuts in the aftermath of the 11th of September attacks, Austin Hughes, chief economist with IIB Bank believes it is now time for borrowers to at least begin to consider locking into fixed rates. ‘Only the very nimble or those very pessimistic about longer term economic prospects should not at least give some thought to locking in the month or two. The three-year area, in particular, may offer significant comfort for the risk adverse.’

Aziz McMahon, treasury economist at Ulster bank Group Treasury, agrees: ‘Much of the upwards pressure on longer term rates is likely to emanate from the US bond market where massive fiscal stimulus is likely to increase Treasury bond issuance and drive yields higher from the 2 years out. Consequently the current environment presents a great opportunity for borrowers to lock into historically low long term rates.’

Also weighing in on the side of fixing borrowing rates is Noel Griffin of Bank of Scotland who says ‘At today’s levels it is fair to assume variable rates are unlikely to fall much below 3 per cent. While I would not be concerned about significantly higher interest rates I do believe fixing one’s interest rate at the current levels offers good value for money and considerable peace of mind.’

James Jordan of Bank of America describes the next 3 - 6 months as ‘a window of opportunity’ for borrowers. ‘From the beginning of next year switching from variable to fixed should be considered as a prudent option’, he said.

But there are those who advise adopting a wait and see policy and staying with variable rates at the moment. Alan McQuaid of Bloxham Stockbrokers said: ‘I would tend to opt for a variable rate mortgage at this juncture. It is hard to see rates going up before late 2002 or the first half of 2003 at the earliest, and even then it should only be by a fairly small amount. I would only opt for a fixed rate mortgage if the deal on offer was very attractive, and I certainly wouldn’t be looking to fix for more than three years in the present environment.’

Dermot O’Brien, chief economist at NCB stockbrokers is also cautious. ‘Borrowers should stick with variable rates for the moment, especially until the economic and political picture becomes clearer. As short rates fall, interest rates in the 2 - year to 5 - year range should respond, though to a lesser extent.’

According to Enda Coll, of Anglo Irish Bank: ‘In terms of interest rate hedging, it would be advisable for Euro borrowers to remain variable for the present, as we are likely to see further interest rate cuts in response to falling inflation and weak economic growth. In the next three months, a clearer picture of the economic environment should emerge, at which stage there should be ample opportunity to take advantage of lower long term fixed rates.’

The comments of the ten interest rate specialists can be read in full on pages 6 and 7 of this month’s publication.

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