Borrowing survey - Rate hikes to put many under strain

IT may be of undoubted comfort to the lending institutions that the value of peoples’ homes and deposit accounts exceed borrowings by €440 billion, but for anybody put to the pin of their collar through borrowing it affords little or no succour.

Although the reassuring news for the institutions is contained in a study published yesterday by IIB Bank and the Economic and Social Research Institute (ESRI), the study also advised that some people are already stretched and rising interest rates will put them under more pressure.

In fact, the study found that 80,000 borrowers will feel some strain from increasing interest rates and 50,000 will experience “considerable” difficulties.

The likelihood is that borrowers face the prospect of two more interest rate increases before this year is out, having already experienced three such hikes since the end of last year.

Those two imminent increases are likely to be of the order 0.25% each, putting even more financial pressure on those who are already labouring to sustain commitments and meet the cost of everyday living.

Such increases affect not just the cost of mortgages, but the cost of living generally, from petrol to home heating, from food to health insurance, and a host of items in between.

It is apt that the study is called In Too Deep? and while it is broadly upbeat about the level of borrowings, there appears to be an underlying recognition that high property prices are not encouraging people to borrow against them.

This would appear to indicate that people are worried about rising interest rates, and sensibly so, because while the general financial wellbeing reported in the study may be sound, it invariably hides very difficult personal circumstances.

There are people already being squeezed by higher interest rates.

Those on low incomes and those who, although they may be considered asset-rich through house purchase, have to confront the realities of everyday living, which for them can be extremely difficult.

Getting a foot on the property ladder is very difficult and very expensive, and too many people have had to compromise their standard of living to achieve it, especially in the first-time buyers market.

So much so that by the end of this year, when two more interest rates hikes will have made their impact, the financial situation of those consumers will have considerably deteriorated.