Trichet Puts Brakes on Irish Property Boom as Rates Head Higher

pipraider

Trichet Puts Brakes on Irish Property Boom as Rates Head Higher

By Dara Doyle and Fergal O'Brien

May 9 (Bloomberg) -- European Central Bank President Jean- Claude Trichet arrives in Dublin today to signal he'll increase interest rates to a six-year high, putting the brakes on Ireland's property boom.

Trichet will probably flag the bank's intention to raise its benchmark rate in June to 4 percent, according to all 22 economists who responded to a Bloomberg News survey. The announcement would come after tomorrow's meeting of the ECB's governing council, which will likely hold the rate for now at 3.75 percent. The bank had kept the rate at 2 percent -- the lowest in six decades -- from June 2003 to December 2005....

http://www.bloomberg.com/apps/news?pid=20601109&sid=arSog5Vs10r8&refer=home

gurramok

And its not the end of it, brakes were applied a while back.

Non-Irish economists such as Bloomberg quoted (not employed by Irish EA and property depending Banks) indicate it could go up to 4.75% by mid-08

DubDani

The Interest Rate is linked quite closely to how well the big EU economies are doing. For years the german economy has been slow. So they had to keep the interest rates low. Unfortunately (for Ireland) the german economy now is going through a phase of substantial growth. Unemployment fell by almost a million in a year and is expected to fall another 500K - 750k by 2008. German growth means that Interest Rates have to go up to stop the biggest european economy from overheating.

Ireland is a small nation and will always depend on how other nations are doing. Tey don't care about the Irish Situation, as it is only a small fish in a big pond.

The_Conductor

Speculation is rife that they may even put rates up today- instead of waiting to June. They are also suggesting that there may in fact be more than the .25% Sept/Oct rate rise before the end of the year. That would be 4.5% by years end.

Interesting times......

Every .25% rise in interest rates reduces people's disposable income by 10%.......

chump

I can't see them changing it today. They've been nothing if not consistent with flagging rate rises. Betfair market doesn't suggest it either. I really can't see it - it would be some surprise if they did!!!

patrickolee

smccarrick wrote:

Every .25% rise in interest rates reduces people's disposable income by 10%.......

Lol.... I don't think so!

Zambia

patrickolee wrote:

Lol.... I don't think so!

It used to take 10% of mine , I was not LOL

The_Conductor

The 10% reduction in disposable income for every .25% rise in interest rates, is a CSO derived figure- obviously its averaged out, so there will be lots of people who it doesn't bother- while there will also be lots of people who are slaughtered by it......

markpb

smccarrick wrote:

Every .25% rise in interest rates reduces people's disposable income by 10%.......

Is it not that every .25% rise reduces the amount people can borrow by 10%?

joemc99

smccarrick wrote:

Every .25% rise in interest rates reduces people's disposable income by 10%.......

Thats the best yet.

The_Conductor

markpb wrote:

Is it not that every .25% rise reduces the amount people can borrow by 10%?

No. On average a .25% increase will reduce people's borrowing capacity by about 30k. The figure I heard bandied about was that each .25% increase was a 10% reduction in people's disposable income.

patrickolee

In general conversation 63% of statistics are made up on the spot, however on internet forums this trends upwards in direct correlation with a user's number of 'previous posts'

With a deposit of 10% on 317,500 the mortgage needed would be €285,750

Now keeping it simple and using the myhome.ie mortgage calculator so that anyone can verify this

http://www.myhome.ie/finances/finances_mortcalc.asp


At an interest rate of 3.5% the total sum paid over 35 years is

€496,011

At an interest rate of 3.75% the total sum paid over 35 years is

€513,550


So we need to find out the damage done to the borrowers borrowing capacity by that .25% increase in our little hypothetical!

Imagine that the original €285,750 figure is the most paddy and patricia can get for mortgage approval.
Rates go up .25% and so over the 35 years so now if they borrow

€276,000 at this increase rate they still pay a total over the life of the mortgage of €496,028

For 100% mortgages the difference is greater.
When rates go up each increase has a bigger effect than the last because its a percentage.

gurramok

Most mortgage approvals last for 6 months so in reality, the last of the December '06 approvals are expiring.
Obviously newer future approvals would have 3.75% ecb pencilled in!

Point being, each rise has an effect on the mortgage market for upto 6 months