Higher prices, mortgage hikes to hit homeowners
HOUSEHOLDS will be hit with a double whammy of higher prices and dearer mortgages as new figures revealed record cuts in the cost of living are set to taper off.
Lower mortgage rates were largely responsible for overall prices in the economy plunging by 5pc in the past year, new inflation figures from the Central Statistics Office reveal.
It was the steepest drop in 80 years, economists calculated.
But there were warnings last night that the price falls are likely to come to a halt as mortgage rises mean inflation will return. This will put further pressure on household incomes.
Large numbers of households are being hit by a combination of negative equity, where they owe more than their home is worth, and negative income. This is where consumers are forced to borrow to pay for day-to-day spending.
The European Central Bank (ECB) left interest rates unchanged when its governing council met yesterday, but struggling Irish banks and building societies are set to hit homeowners with higher mortgage rates as early as March.
Mortgage repayments dropped by 40pc last year as the European Central Bank cut interest rates repeatedly. ECB rates are at a record low of 1pc.
Falling home interest rates were the number one factor driving last year's record deflation.
ECB president Jean-Claude Trichet yesterday said in Frankfurt that the ECB rate of 1pc was "appropriate".
It was unclear from his comments whether ECB rates would rise at the end of this year, or if a rise in rates would not take place until next year.
A rise in ECB rates would impact on people with tracker mortgages, which rise and fall only when ECB rates change.
But thousands of homeowners are vulnerable to lenders here raising rates on standard variable mortgages. Lenders are free to hike these rates irrespective of what the ECB does.
Earlier this week, a report by Karl Deeter, of Irish Mortgage Brokers, predicted that standard variable rates would rise from March and be 1pc higher by the end of the year.
And Deirdre Ryan, an economist with Goodbody Stockbrokers, said that the fall in prices was set to ease off in the coming months, with inflation likely to return by the end of the year.