Business Property & Mortgages

Saturday 25 November 2017

Homeowners hit as mortgage hikes push up the cost of living

Aideen Sheehan

Aideen Sheehan

HARD-PRESSED homeowners are set to pay the price after the cost of living was pushed up by mortgage hikes.

The consumer price index -- the measurement of the cost of living -- rose by 0.4pc in February, only the second time in the last 17 months that prices have risen rather than fallen.

The 0.5pc hike in the standard variable mortgage rate by Permanent TSB in February was one of the main reasons for the rise.

Economists say it is inevitable that more banks will follow suit -- and those rate increases will lead to a hike in prices of a range of goods and services.

Annual inflation remains negative at -3.2pc but this is the smallest drop in nearly a year and much less than the fall of 6.6pc recorded last summer, new figures from the Central Statistics Office (CSO) show.

But with AIB warning they will increase their variable interest rates in coming months, and Bank of Ireland and EBS also signalling rises, analysts now predict that the era of falling prices is over and the cost of living will rise again during 2010.


Cuts to mortgage interest rates last year were a huge driver of deflation but with no more European Central Bank cuts to ease pressure on consumers, even small increases in interest rates by lenders, such as Permanent TSB's 0.5pc increase, have a big influence on the cost of living, said Ulster Bank chief economist Simon Barry.

"These dramatic swings in the rates of change exert a very strong influence on the trajectory for overall inflation, which we anticipate will itself be back in positive territory by, perhaps, the end of the summer," he said.

Householders on tracker or fixed rates would not be hit by increases, but the overall price trend would still be up, he said.

Bloxham Stockbrokers said that economists were predicting a return to inflation by October or even earlier.

"It could be sooner than that the way things are going, especially if the banks keep pushing up mortgage interest rates and global oil prices continue to rise," said Bloxham analyst Alan McQuaid.

The CSO figures show that the end of the winter sales resulted in higher prices for clothes, shoes, furniture and household equipment last month, while air fares have soared by almost 27pc since last year, as airlines cut schedules.


However, there were some welcome price drops -- health costs fell by 2pc in February, mainly down to a sharp fall in the price of prescription drugs following a government deal with the drug companies.

But consumers were hit by a 5.2pc increase in health insurance premiums last month and this cost is up by over 9pc in the last year, with home insurance up 2.3pc in the month and 13.7pc in the year.

And there were warnings that consumers were now paying the price for the Government's refusal to tackle high, state-controlled costs.

As high energy bills roll in following the harshest winter in years, the CSO figures show that total energy costs are up over 6pc in the last year, while education costs are up 10.6pc and transport costs have increased by 3.9pc, said Fine Gael finance spokesman Richard Bruton.

The new carbon tax will also cause gas prices to rise by 6pc in the next few months and landfill charges are set to rise by another 20pc, said the Irish Small and Medium Enterprises Association chief Mark Fielding.

Irish Independent

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