Wednesday 13 December 2017

Soaring home loan rates push cost of living to two-year high

Aideen Sheehan

Aideen Sheehan

Soaring mortgage repayment rates have driven up the cost of living for the first time in nearly two years.

Prices are up by 0.2pc in the past year -- the first time since December 2008 that the annual inflation rate has risen.

Mortgage interest repayments soared by 10pc last month alone and are up by a whopping 24pc in the year due to bank rate hikes, the latest figures from the Central Statistics Office show.

As tracker mortgages are immune from these increases -- thanks to unchanging European base rates -- it is variable-rate customers who are disproportionately feeling the squeeze.

There are 237,000 people in the variable-rate category and with all lenders, including AIB, Bank of Ireland, EBS and Irish Nationwide, pushing up rates in recent months, some householders have had to contend with multiple increases, adding hugely to their repayments, said Frank Conway of the Irish Mortgage Corporation.


Every 0.5pc increase adds around €88 a month to a €300,000 mortgage, and some lenders such as Permanent TSB have raised rates three times in the past year, adding over €200 a month.

The Money Advice and Budgeting Service (MABS) said the increases were putting pressure on their customers, as although many prioritised paying their mortgage, they were then finding it impossible to meet other bills such as gas, electricity or credit-card debt.

"People are making huge efforts to pay, but they are in the "can't pay" rather than the "won't pay" category, and you have to worry about the social and psychological impact," said MABS spokesman Michael Culotty. "The message that has to get out to people is that there is forebearance there and there is a code of conduct for those in mortgage arrears, so the worst thing you can do is bury your head in the sand."

The end of the summer sales also brought increased prices for clothes and shoes in August, while transport costs rose due to higher airfares and car rental charges, the CSO figures show.

Overall, prices rose by 0.7pc in August. The cost of eating and drinking continued to fall, however, thanks to cheaper wine, meat and vegetables.

Ireland is now unlikely to get stuck in a deflationary spiral, with prices now predicted to pick up gradually in the next 12 months, said Alan McQuaid of Bloxhams Stockbrokers.

Business lobby group IBEC warned that prices in some sectors were still too high and needed to come back in line with our competitors.

"Prices are now rising again but the spare capacity in the economy will ensure that inflation in coming years will be fairly moderate. Price levels are likely to remain below their 2008 peak until 2013," said IBEC economist Reetta Suonpera.

Irish Independent

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