Saturday 22 July 2017

Mortgages to fall by average of €82

Cowen: house price slump nearing end

Charlie Weston, Ciaran Byrne and Michael Brennan in Tokyo

HOMEOWNERS are in line for a mortgage boost today after international money markets signalled another big cut in interest rates.

Most analysts last night predicted a European Central Bank cut of 0.5pc, which would bring the key policy rate to 2pc, and reduce monthly repayments on a €300,000 mortgage by €82.

The expected move came after Taoiseach Brian Cowen, in a surprisingly upbeat outlook, predicted the slump in house prices could come to a halt this year.

Another ECB cut would be its fourth in four months and would mean mortgage repayments will have plunged by €400 a month, if banks pass on the reductions.

Economists are now predicting that interest rates will fall to as low as 1pc by the spring.

Mr Cowen said the slump in the housing market was nearing an end. "I believe we are coming to a point this year where that will bottom out," he said.

The Taoiseach was speaking during a trade mission to Japan after two reports showed further sharp falls in Irish house prices of 15pc in 2008.

A report by the Irish Auctioneers and Valuers Institute found new house prices in Dublin fell by 15pc in 2008, bringing to 25pc the drop since their peak in 2006. A report by found an average national drop of €58,000 in asking prices.

Friends First chief economist Jim Power flatly rejected the Taoiseach's analysis. "He is not basing this on facts. This is a psychological ploy to get people thinking more positively."

However, Mr Cowen's bright outlook cheered other economists including the author of the property report, Ronan Lyons, who said: "The Taoiseach is right in that things could turn around with low interest rates and all the new stimulus packages. Then there may well be a bottoming out of the market in some areas. It's not groundless...

"We won't replace the Dell jobs but it's not all gloom. We got some things wrong but the message the Taoiseach is trying to make is that we got a lot right too."

Austin Hughes, chief economist of KCB Bank, formerly IIB, said Mr Cowen was trying to puncture the "excessive pessimism" among consumers.


"There is a very strong element of psychology here but in terms of confidence, Mr Cowen is trying to get over the fear that dominates Irish households," Mr Hughes said.

The Taoiseach said the difficulties in the property market had been exacerbated by the serious decline in residential construction -- from a peak of 93,000 new houses in 2006 to less than 20,000 this year.

"We had a period where output outstripped demand and a period before that where it was very difficult to meet demand. Now we have a situation where a necessary correction is taking place," Mr Cowen said.

Some economists have said the ECB may not reduce rates this time, but a majority now expect the fourth cut in four months to be announced in Frankfurt at lunchtime.

Whether the ECB cuts rates today or next month, it is expected to go on cutting rates in a move that could see historic lows of around 1pc by the spring. It has already lowered rates by 1.75 percentage points.

If a family has a €300,000 mortgage over 30 years, set at 1pc above the ECB rate, then they will see their monthly repayments drop by €82 if the ECB cuts rates by 0.5pc.

However, a number of lenders warned last month that they were unlikely to pass on today's cut to standard variable rate customers. Banks are not obliged to pass on ECB cuts to these customers.

Yesterday, Halifax said it would pass on the full cut to its standard variable rate customers and those on its new LTV (loan to value) mortgage.

AIB said it would pass on the cut to owner-occupiers with standard variable rates, along with those on trackers.

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