Sunday 16 June 2019

Homeowners likely to face more hikes in interest rates

Charlie Weston Brendan Keenan and Paul Melia

HOUSEHOLDERS struggling to cope with rising mortgage repayments face further crippling interest rate hikes.

The spectre of further increases comes as new figures show that house-price growth has ground to a shuddering halt.

And separate figures from the Central Statistics Office forecasting a massive drop in the amount of new houses built this year show that confidence in the once-buoyant property market is now at an all-time low.

Financial analysts predict that European Central Bank rates will rise to 4pc in June. That would leave borrowing costs at double the level of 18 months ago, knocking tens of thousands of euro off the prices first-time buyers can pay.

But some economists think 4pc will not be the peak, after news that money supply grew at the fastest rate in 17 years in the 13 countries which share the euro.

"The move to 4pc is a sure thing; another one can't be ruled out," said German economist Jens-Oliver Niklasch after the borrowing figures were followed by news of a rise in German inflation.

Further rate rises will keep the property market stagnant and could even see price falls of the kind which have already hit the US housing market.

The gloomy revelation comes as a new report reveals that house prices rose by just 0.3pc in November, December and January.

This represents an annual rate of not much more than 1pc, although the report by Bank of Ireland expects prices to rise by 3-4pc for 2007 as a whole.

Economist Dan McLaughlin said house completions will fall back to 80,000, a drop from the bank's previous estimate of 85,000. Last year 93,400 new housing units were completed.

Another indication of the sharp slow-down in the housing market comes from new statistics that show that planning permissions for new houses and apartments plunged by 23pc in the last three months of last year.

'The move to 4pc is a sure thing and another rise can't be ruled out'

Planning permissions were granted for 16,251 units, compared with 21,203 in the last three months of 2006, according to the Central Statistics Office.

And the figures from Bank of Ireland show that there will be a reduction in new mortgages issued this year.

Some ?25bn would be taken out in new mortgages this year, roughly the same as last year, the bank's Dr McLaughlin said.

He added that the fall-off in the number of new mortgages would be offset by a rise in the average size of a mortgage.

The economist denied that the housing market was heading for a crash and insisted it was set for a "soft landing". However, rate rises were squeezing buyers out of the market, while uncertainity over stamp duty was encouraging some potential buyers to stay out of the market.

But some of this was counterracted by the changes in the Budget which allow a first-time buyer couple to offset ?16,000 of mortgage interest against tax, Dr McLaughlin said.

Meanwhile, new Central Statistics Office figures published yesterday provide further evidence that Ireland's property boom is grinding to a halt.

They show that requests for planning permission granted in the last three months of 2006 fell by almost a quarter compared to the previous year.

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