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THE COST OF INTEREST RATE HIKES

07
Mar, 2011

European Central Bank (ECB) interest rate hikes could cost Irish homeowners €450m this year and another €1.9 billion on top in 2012, an expert on banking relationships told The Sunday Business Post.

Additionally, if the ECB follows its previous pattern of serial rate hikes, Irish mortgage holders would be on the hook for €5.5 billion more by the end of 2013.

Basing his calculations on a 4% cumulative rise in rates over the next couple of years, John Finn of Treasury Solutions in Cork says that following the virtual demise of fixed rate homeloans, almost every homeowner would be hit by the ECB increases.

Also, they would have a knock-on effect on the rest of the economy as anyone with savings would salt even more away to prepare for further rate rises.

“Those who can save to plug the gap will save more than the actual rate rises, as they can’t anticipate the speed of hikes and will err on the side of caution as a result,” Finn said. “Those already in arrears will be driven to an unsustainable position.”

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