Hope for homeowners as interest rate cut on cards
Published 12/08/2011 | 05:00
HARDPRESSED homeowners could be in line for interest rate cuts -- just weeks after the rates were hiked.
Economists predicted the turmoil on the international markets could force the European Central Bank (ECB) to do a U-turn on rate rises.
The ECB has increased rates twice this year -- in April and in July -- by a quarter of a percentage point on each occasion.
Last week, it emerged homeowners will be spared mortgage increases for up to a year amid the deepening euro crisis.
Yesterday, the possibility was raised that the increases which have been put in place may be reversed.
Employers' group IBEC predicted further drops.
"Oil prices have dropped and interest rates will be lower than previously expected. This is good news for Irish consumers," economist Fergal O'Brien said.
"At the very least the ECB will dismiss any notions of further interest rate increases and recent hikes could even be reversed."
The two rate rises this year -- affecting almost 600,000 householders -- added €60 a month to the cost of servicing a €200,000 mortgage.
The interest rate prediction came as the Consumer Price Index (CPI) yesterday showed the rate of inflation has been consistent for the last three months and remains steady at 2.7pc, according to figures from the Central Statistics Office.
Over the last year there has been an increase of more than 10pc in the cost of housing, water, electricity and gas -- made up mostly of rises in rents and mortgage interest.
There was also a sharp spike in the cost of insurance (14.5pc) over the year.
There were drops, meanwhile, in the cost of furnishings and third-level education from July last year to last month.
IBEC said the recent drop in VAT had become apparent in the new statistics.
"Tourism-related prices would typically have increased in July, so there is some evidence of the reduction being passed on to consumers, however, it will probably take a few months for the index to fully reflect these price reductions," Mr O'Brien said.
"The overall outlook for inflation is now much more benign and price rises are likely to be limited over the coming year. The CPI increase is likely to average about 2.5pc this year and no more than 1.5pc in 2012."
However, despite the steadying of the inflation rate, small firms said not enough was being done to temper government-controlled costs such as rates and taxes.
"The constant theme among businesses struggling to survive is the increasing costs of doing business, in particular the costs of rates, rents, energy, transport, labour and local charges," ISME chief executive Mark Fielding said.
"There does not seem to be the appetite at government level to introduce the reforms necessary. While lofty promises from well scripted speeches outline plans to address these issues, little has been done to date."