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Personal debt crisis will be country's next body blow

They have ruined this country, we have and continue to bail them out, yet our banks haven't said thanks. Instead, they are once again doing what they do best, screwing their customers royally. As the country has been distracted by the dangerously deceptive debate between the main political parties on the economy (which is in a far worst state than any of them are admitting), Irish homeowners brace themselves for another series of hikes in their mortgage interest rates.

News that between now and the end of 2012, interest rates set by Jean Claude Trichet's European Central Bank (ECB) will rise between five and six times, will be as welcome to homeowners as a bout of smallpox.

When added to pay cuts, tax increases and the overly inflated cost of living in Ireland, homeowners are facing into another incredibly tough period. Once again, mortgage holders will be walloped quarter after quarter by steadily increasing costs, and will be pushed to breaking point as banks seek to squeeze funds from wherever they can.

While interest rates have been at historically low levels since 2008, relatively low monthly repayments have been a saving grace for thousands of struggling families in Ireland. Many have been barely able to keep their heads above water.

Should there be six increases in ECB rates by the end of 2012 on both trackers and standard variable rates, ECB rates would rise by 1.5 per cent from their current rate of 1 per cent. Increases of 0.25pc each quarter are likely from the latter part of this year and through next year, it now appears.

To illustrate that clearly, ECB rates going up by 1.5pc to 2.5pc would add around €150 to the monthly repayments on every €100,000 borrowed on a tracker.

So, for someone with a mortgage of €400,000 a month, the added burden could be as high as €600 a month. But it is not just Trichet's gang people have to worry about.

Last week, Ulster Bank became the second financial institution to announce an increase in mortgage interest rates this month.

It is raising its standard variable mortgage rate by half a percentage point to 4.35 per cent from March 1, adding about €27 a month to the repayments on a 20-year €100,000 mortgage.

Earlier, Permanent TSB confirmed that it will raise its standard variable mortgage rate and other variable mortgage rates by one percentage point. The standard variable mortgage rate will increase to 5.19 per cent. The increase will affect mortgage repayments from March 7. Permanent TSB says the impact of the rise on its average standard variable mortgage rate will be about €33 a month.

And such increases are not part of, but on top of, the planned ECB rises.

At present, about 400,000 homeowners have tracker rates, while around 200,000 people are on variable rates. Another 200,000 mortgage-holders are now locked into fixed rates.

Karl Deeter, Operations director of Irish Mortgage Brokers, said the EBS and Haven (its broker division) moves on fixed rates would be followed by other lenders.

He said that lenders would also continue to push up variable rates.

"Discontinuing fixed rates within a week of hiking rates spells it out loud and clear -- the majority of those on the EBS book are going to be in for painful rate hikes," he said.

The extra burdens are simply unfathomable for most and will inevitably lead to a massive surge in those falling into arrears on their mortgages. The inevitable follow on from that is a surge in repossession orders in the High Court on Mondays.

The pressure on household finances has been brought into sharp focus by research showing that half of the adults surveyed feel they will be worse off this time next year.

Fine Gael Senator Paschal Donohoe has described the pending interest rates on top of tax increases and the likely further austerity measures as a "perfect storm" that could wreck the economy further.

"Low interest rates and low tax levels provided the backbone to consumer spending and disposable income.

"Taxes are up and interest rates are returning to higher levels in response to inflation and bad banking balance sheets.

"This is a perfect storm capable of completely wrecking consumer confidence."

"Government must respond. This must be done by keeping taxes as low as possible and declaring war on our cost of living," he said.

However, not all think the ECB is to blame for the pending pain. Marc Coleman, economics editor of Newstalk and a Sunday Independent columnist, said the pain that is coming is not the fault of the ECB.

"Other EU countries will see rates rise and will not be as badly affected.

"The problem is the unholy mess we have made of our housing market, our fiscal position and our banking sector," he said.

Coleman said that the increases in interest rates are being caused by the scarcity of funds since 2008, overly harsh capital requirements set down by Financial Regulator Matthew Elderfield, as well as overly aggressive haircuts by Nama.

Outgoing Finance Minister Brian Lenihan, has repeatedly said since 2008 the Irish people have shown incredible forbearance to date, but we'll need to show an awful lot more, given we face at least another three years of crippling austerity.

It is also clear the public fear the worst is yet to come. The latest MillwardBrown Lansdowne poll conducted for this newspaper reveals that 78 per cent of people fear that standard of living will fall, 66 per cent worry about being able to pay household bills while 2 out of every five fear losing their jobs.

Most alarmingly, 27 per cent, more than one in four, fear they will lose their home by the end of this year, with those in poorer areas most concerned.

Worse still, almost 90 per cent of those polled fear Ireland is set for another two years of recession with three out of every four saying they expect the recession to last for more than three years. Such revelations give a startling insight as to why consumer confidence is so brittle.

Such fears are highest among those over 65 years of age, the poll said.

For their part, despite being bailed out by the taxpayer to the tune of almost €100bn between capitalisation and Nama, the banks have little time for such sob stories.

Protecting homeowners who fall into arrears will push up borrowing costs for other mortgage-holders, the Bank of Ireland told us recently.

The bank also said that changes to the existing code of conduct on mortgage arrears would also be viewed negatively by international markets, it warned in a submission to the Financial Regulator Matthew Elderfield.

The banks also want to have Elderfield's proposals diluted. In particular, they object to proposed limits on the number of unsolicited communications a bank can send to a mortgage-holder in arrears and to plans for an independent appeals process where disputes arise.

As a society, there can be no rewarding those who seek to renege on their financial commitments or think the normal rules don't apply to them.

But we are facing into another major crisis, that of personal debt.

Given what is coming down the tracks, and given the extent to which we have bailed out the banks, it is no wonder homeowners are asking themselves -- "Where's my Nama?"

Sunday Independent