Interest rate hike to hit homeowners

THOUSANDS of homeowners will struggle to meet mortgage repayments as interest rates double over the next three years, a leading economist has warned.

A report by KBC Asset Management forecasts interest rates could rise to as high as 6%, more than double what they are at present.

Chief economist Eoin Fahy said current interest rates in the EU are too low. He warned the continued economic growth in the eurozone could force the European Central Bank to raise rates in a bid to curb inflation. If interest rates double, the cost of financing the average €200,000 mortgage over 30 years would rise by nearly €400 per month.

This latest report backs up a similar warning by the Central Bank which recently raised concerns about the vulnerability of the economy here to an interest rate hike.

The bank warned there were signs that variable rates were on the rise. Over 80% of mortgage holders are on variable rates, leaving them exposed in the event of any hike in interest rates.

Inflation has risen from around 1.5% a couple of months ago to well over the ECB’s 2% target, mostly due to a rise in oil prices. The latest hike in the price of oil, which rose to a record $42.50 a barrel last night, will put further pressure on interest rates.

The National Housing agency said it was deeply concerned at the prospect of such high increases in mortgage repayments.

Stephen Large of Threshold said, in its experience, many people were being loaned at least double their entitlement under mortgage guidelines. “For somebody on the average industrial wage of €32,000 there is no way they could buy a home costing over €300,000 or more on their earnings.

“These people are already at the pin of their collar to cope with repayments and day to day living. If the interest rate trend evolves as forecast then repossessions are possible down the line.”In further bad news for homeowners, one of the country’s leading estate agents said the value of houses look set to fall.

Maria Hunt, senior executive at Richard Ellis Gunne, said the amount of houses being built is getting out of hand.

“Real demand exists for about 50,000 houses to satisfy the demand of first-time buyers, but we are about to build 80,000 this year,” she said.

Her concern is that the market is reaching saturation point and that prices face an inevitable collapse.

Ms Hunt condemned the Economist report last year that claimed we were on the brink of a house price implosion. However, the situation has changed, she said yesterday.