The Global Cost of an Invasion – How War Takes Money Out of Pockets

oil

Petrel Resources’ David Horgan explains that Russia accounts for 11 percent of world oil production and exports over seven million barrels of the material a day, but nearly half is unable to find a buyer due to sanctions. “We’re in a bottleneck between supply and demand, which will lead to higher prices if demand isn’t destroyed,” he says.

That means price increases, but the timing and amount depend on government subsidies and long-term contracts that aren’t made public by buyers.

“We are sleepwalking into an energy crisis, with a real risk of blackouts and rationing unless sanctions are circumvented and/or if Russia retaliates with a temporary export embargo,” says Horgan. “The worst case could be a duplication of bills.”

The good news is that we are getting more from renewable energy and our own gas resources. The carbon tax adds €93 and the PSO levy €58 to the annual bills, along with VAT at 13.5 percent. This month we see €200 energy discount on bills.

Food

Ukraine is a huge supplier of grain, so expect price increases for everything from flour to cookies, cakes and confectionery to grain used for animal feed.

Ukraine supplies 12 percent of the world’s wheat, 18 percent of its barley and much of our sunflower oil. When supply chains are disrupted, all the processed foods that flow from them will be affected.

insurance and travel

When flights are disrupted, airline stock prices fall. Travel is becoming more disruptive and expensive, making tourists nervous. Insurance companies are worried about future Russian interventions, so premiums are rising. The regrouping of round trips, vacation packages, vacations and business travel means airlines have to divert traffic to maintain profit, so all airfare costs can increase. On the downside, they don’t want people to stop flying, so expect instability as airspace remains restricted.

computers and cars

Ukraine has a huge resource of rare earth minerals (partially why Putin wants it) used for microchips. Expect electronic devices and electric cars to increase in price.

inflation and mortgages

Inflation was already ridiculously high with suggestions there could be 8 percent later
Year. Fixed income earners such as retirees are hardest hit.

Alison Fearon, MD of Switcheroo.ie says: “It’s a very complicated landscape for economists to analyze but unless inflation abates there will be rate hikes and history would tell us that an energy crisis is quickly followed by a recession can.”

What does this mean for households?

“In practical terms, this means that a grocery basket that cost 100 euros would now cost 105.90 euros. If you didn’t have an increase in income to the same level, you can now buy fewer goods and services than before and are poorer as a result.”

The policy response to inflation is interest rate hikes. While the ECB is signaling changes at the end of the year, the market is already pricing in multiple hikes over the next two years.

“Those with variable or tracker mortgages will see a direct increase in their monthly mortgage payments. A $300,000 mortgage with a variable interest rate of 2.9% would result in an increase in repayments of $80 per month, or $960 per year with a 0.5% interest rate increase. Those with fixed rate contracts will be protected from an ECB rate hike.”

There are now fixed rates from 1.95 percent for seven years or even 15 years at 2.25 percent.

However, the interest rate swap market has been growing steadily since the beginning of the year, as many fixed rate mortgages are priced. So don’t wait for ECB rates to move or it might be too late (see below).

Switching an existing mortgage to another provider takes around three months.

savings

Eoin McGee says he’s always surprised when people borrow and hold on to savings. In his new book How to make your money work he thinks we’re too emotionally attached to savings. We keep them “just in case”.

“If you have $10,000 in savings at 0.5 percent interest, it’s worth $10,252 in five years. If you borrow €10,000 at 8 percent, you’ll pay back a total of €12,165 over five years. The difference is €1,913. The bank does that by lending you your own money.”

While rate hikes are good for savers, the most important metric is real interest rates. The real interest rate is the nominal interest rate minus inflation. So if interest rates go up 1 percent and inflation is still 5 percent, the real interest rate is still minus 4 percent. Until inflation is below interest rates, savers will lose out, says Alison Fearon.

Sometimes paying off debts is best. Now is the time.

To fix or not to fix

When it comes to a fixed rate mortgage, you’re not alone. About three-quarters of all new loans are fixed-rate, and this reflects the reassurance borrowers want when they’re stretched to the limit and want certainty about what their repayments will be, at least for the first few years.

Keep in mind that the prime rate advertised may only be available to those switching who already have good equity, e.g. B. a loan to value (LTV) of 60 percent. If you need the full 80 or 90 percent, you pay higher interest.

Time: Fixes are available for anything between 1 and 30 years old.

Flexibility: With a variable interest rate, you can switch or pay off the loan without penalty. But not once you’ve signed a fixed price contract. The lender has built in profit expectations. You can charge up to six monthly installments in some cases, although there are non-bank lenders who will allow you to overpay your mortgage to some extent each year with no fees. If you need to sell quickly – changing jobs, getting divorced, etc. – then you could inadvertently break a fixed-rate contract. The earlier you enter into the contract, the higher the fee.

Information: Use comparison sites like Bonkers.ie, CCPC.ie or Switcheroo.ie to compare market prices. Or use a mortgage broker to do the paperwork.

Own Lender: Your current mortgage lender may be happy if you switch from an adjustable to a fixed rate. Have a new assessment done to prove your LTV is better.