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Gloomy outlook as mortgages set to rise in March

After the biggest fall in prices in 80 years, families have now been warned to expect higher prices and rising mortgage repayments.

Inflation figures released by the Central Statistics Office (CSO) show prices have dropped by 5pc -- but that this was largely due to falling mortgage repayments.

The level of deflation is the largest recorded since the 1920s.

Economists warned households last night that the trend was unlikely to continue, meaning that prices would inflate this year again.

Deirdre Ryan, an economist with Goodbody Stockbrokers, said the fall in prices would ease as the year went on, with inflation likely to return by the end of the year.

Households are already suffering through negative equity on the value of their homes and negative income as they borrow money to pay for day-to-day spending.

Homeowners were given a reprieve yesterday when the European Central Bank (ECB) left interest rates unchanged, but struggling banks and financial institutions are likely to raise mortgage rates as early as March.

Mortgage interest rates fell by 40pc last year as the ECB tried to relieve the pressure on economies and currently stand at a record low of 1pc.

After the ECB meeting, president Jean-Claude Trichet described the interest rate of 1pc as "appropriate".

This rate is expected to remain unchanged until at least August, with most economies predicted to be out of recession by the second half of the year.

It will be worrying times for people on tracker mortgages, who see their repayments change along with the ECB rate.

Thousands of homeowners on variable mortgages are in a precarious position as lenders can raise rates irrespective of what the ECB does.

The CSO figures show a marked decrease in the prices paid for clothes, rent, cars and hotels. However 2009, saw hospital and education prices rising by more than 10pc.

Transport cost were another area of the economy which saw price increases during the recession with a 13pc rise in air fares, a 12pc rise in bus fares and an increase in rail fares of 8pc.

hnews@herald.ie


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