The uptick in interest rates is affecting current and aspiring homeowners. With fixed-rate mortgage deals significantly less attractive than they were this time last year, many first-time buyers will be priced out from segments of the market they might have afforded previously. Equally, those on variable rate and tracker products are feeling the pinch with monthly repayments creeping up.
Interest rate hikes have triggered property price declines in markets across the globe. Industry professionals here, however, are convinced Ireland will be the exception.
They claim that two things will counterbalance the drag on demand from higher borrowing costs: strong population growth, fuelled in part by immigration, and the continued mismatch between demand and supply.
Daragh Cassidy, head of communications at price comparison website Bonkers.ie, believes, however, the industry is underestimating the impact of higher interest rates and that we will see a price correction of some sort.
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“When it comes to forecasts for property price growth the focus is mainly on demand and supply,” he says. “However, the impact of rising interest rates and therefore repayment capacity seems to have been almost forgotten about. Some of the forecasts for growth this year seem wildly optimistic. Indeed it’s hard to see how an outright fall in prices this year and next can be avoided.”
His rationale is that until the middle of last year, a first-time buyer or mover borrowing €300,000 over 30 years could have got a mortgage rate of about 2 per cent with a monthly repayment of €1,109 a month.
Since then, the European Central Bank has hiked rates by three percentage points. If rates go to say 5 per cent to keep the same monthly repayment of about €1,109, either the amount borrowed or property prices would need to fall by about 30 per cent. Cassidy is not saying that prices will fall by this amount but, as he notes, it illustrates the huge impact a rise in interest rates of just a few percentage points has on monthly repayments and affordability.
