Homeowners to be hit with rate hikes

INTEREST rates are set to rise by 200% while Ireland is still in recession, spelling extreme trouble for homeowners.

There are also fears there could be calls for Ireland to leave the euro given expectations it is expected to bounce back slower than other European countries.

Director of financial planning with McAvoy & Associates and former Wall Street derivatives specialist, Laurence Daly, said Irish borrowers need to brace themselves for a “heart-pounding collision” with expectations that the European Central Bank (ECB) will double interest rates to 2% by January 2011 and to 3% by January 2012.

Mr Daly said the hikes could spell “extreme trouble” for Irish borrowers as most economists predict that Ireland will remain mired in a deep recession until at least 2012.

“It would normally be unthinkable to increase interest rates while the economy is still contracting. Our membership of the eurozone however means that we have no control over the direction of interest rates,” he said.

It is expected that interest rates will remain at their current record low level of 1% until at least the middle of next year.

However, analysts believe that banks could begin hiking rates on standard variable mortgages shortly, aside from any moves by the ECB.

Mr Daly also said that there could be calls for Ireland to leave the euro.

“If the remainder of the eurozone begins to expand economically then it’s hard to see the inflation-hawkish ECB worrying too much about the pain that a few million people in Ireland are suffering as a result of their decisions.

“In an environment where we are trying to deflate and cut our way back to a competitive position rising interest rates shorten the odds of an early exit from the eurozone,” he said.

Meanwhile a survey released by MyHome.ie found that half of people said they intend to purchase a house in the next 12 months and 69% said they have funds in place to pay a deposit.

Of the 1,200 people surveyed 18% said they have mortgage approval and 11% are actively seeking a mortgage approval.

Economic consultant with MyHome.ie, Paul Murgatroyd said: “Clearly the results show that falling house prices continue to influence buyers’ decision making now, but over the course of the next year only a minority of people believe prices will fall drastically from their present levels, which if they are proved correct will lead to increased activity in the market as 2010 progresses.”