Tuesday 16 January 2018

Boost for borrowers as interest hikes to end

Edel Kennedy

THE spiral of interest rate hikes is nearly at an end, top economists predicted last night. They did so following a European Commission report which forecasts a critical slowdown in inflation.

THE spiral of interest rate hikes is nearly at an end, top economists predicted last night.

They did so following a European Commission report which forecasts a critical slowdown in inflation.

The main reason the European Central Bank (ECB) began its series of rate hikes this year was to curb price increases.

As a result homeowners have had to endure five of those increases in the past 12 months.

The five rises have added almost ?170 to the average monthly repayments on a 30-year ?300,000 mortgage. A sixth has already been confirmed for next month and will add a further ?44 to average monthly repayments.

But there was good news on the horizon last night. After yesterday's important Commission report on inflation, Irish economists agreed next month's rise could well mark the end of the spiral.

The Commission's economic forecast for 2006-2008 says prices will rise by less than 2pc by 2008.

Last night IIB economist Austin Hughes told the Irish Independent: "The ECB (European Central Bank) simply doesn't have to rise rates any further." He said the current 3.5pc bank rate (which means at least a 4.5pc rate for borrowers) is sufficient.

"We've been guaranteed another one in December but that will be it, done and dusted," he said.

"The evidence from the Commission is that there is no need for aggressive rises in interest rates."

There is, however, the possibility of one final increase from the cautious bankers for 'insurance reasons'.

"They would prefer to make rates a little too high rather than too low," he added.

The Bank of Ireland's Dan McLaughlin was even more optimistic.

He believes next month's increases will be the last. He believed rates are likely to peak at 4.5pc.

But he said some feel they will reach 4.75pc and stay there for some time.

He reminded home owners that the economy moves in cycles, and with the economic cycle peaking in Europe, so too will interest rates. The comments will dampen earlier fears that rates would reach 5pc or higher.

The Commission's report also signalled growing concern that further interest rate hikes could adversely affect the Irish property market.

It says: "Housing markets continue to be richly valued in a number of member states and, in the event of further interest rate hikes, a significant correction may occur."

Buyers

Mr McLaughlin said interest rates at 5pc or higher would adversely affect our property market, but said current rates will simply lead to slower price growth.

However, the report cautions that the Irish economy is overly dependent on the property market.

The EU's Economic and Monetary Affairs Commissioner Joaquin Almunia named Ireland as being one of the most vulnerable countries.

Meanwhile, auctioneers last night called for a complete revamp of the stamp duty system.

In their pre-Budget submission, the Institute of Professional Auctioneers and Valuers (IPAV) called for:

* The number of stamp duty bands reduced.

* Double mortgage interest relief for first-time buyers.

* Double the income tax exemption limit in rent-a-room scheme.

IPAV president Sean Mason said changes are needed as the housing market appears to be on its way to a soft landing.

"This would be the most desirable outcome," he said.

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