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Further rate rises threat to second homes

Conor Sweeney

and Brendan Keenan

SECOND homes are most vulnerable to a property downturn amid growing fears of more interest rate increases.

Analysts say the next quarter percentage point rise in rates could come as early as May.

And mortgage rates could be more than 4pc by the end of the year, they predict.

Fears were also fuelled by a survey compiled by Britain's Royal Institution of Chartered Surveyors which found property booms were spreading across Europe.

Ireland's 8pc rise in house prices last year was only the sixth highest in the EU - about a third of surging prices in Denmark and Estonia.

But summer homes have been singled out as at risk from a slump, whether in rural Ireland or sun spots like the South of Spain.

"It is the credit boom which is really bugging the European Central Bank," Dermot O'Brien, chief economist at NCB Stockbrokers in Dublin commented.

"Not only is debt rising across the euro area - it is accelerating, especially on mortgages.

"As far as the ECB is concerned, that means interest rates are too low. They are determined to get them higher, and are only held back by fears for the economy."

Analysts predict that the next quarter percentage point rise in rates could come as early as May, and mortgage rates could be more than 4pc by the end of the year.

"The ECB believes money is too cheap. They won't move next month, but May is a possibility, although June is still most likely," said John Beggs, chief economist at AIB Group Treasury.

The report says rising rates are unlikely to produce a property crash, but some sectors and some countries are more vulnerable than others.

Ireland ranks high on second homes, but is also vulnerable because most mortgages are at variable rates, whereas many other EU countries favour fixed interest rates.

The real cost of borrowing was around zero in Ireland in recent years, the Society says in its property report. By contrast, German mortgage rates, which are mostly fixed over the long-term have been 3-4pc higher.

The shoe will now be on the other foot, as Irish borrowers face the full impact of higher rates and fixed rate borrowers enjoy protection.

"The implications for European housing markets could be substantial. The end of the boom may be in sight. "Will markets crash? That is hard to say but the general prognosis is probably no," the report says.

But while a general crash is not on the forecast, holiday homes may prove the most vulnerable.

"Much equity withdrawal, as in Ireland, is being ploughed back into the housing market via contributions to children's house purchase and the buying of second and investment homes," the report notes.

"Each year of rapidly rising house prices in such a context suggests a greater likelihood of a correction at sometime in the future. Nonetheless, there is little evidence of a major downturn just around corner because of the low interest rate environment.

"We expect the European house price boom to run into its eighth year in 2006, with the market supported by a clear upturn in economic activity and income levels," the institute's chief economist, Milan Khatri, said.

The market for holiday and investment homes could be vulnerable once people stop believing in continued price gains and higher interest rates make second mortgages less attractive.

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But summer homes have been singled out as at risk from a slump, whether in rural Ireland or sun spots like the South of Spain.

So only second homes in rural Ireland are risk? - implying that your primary residence in Dublin is never under threat. How stupid is that?

Much equity withdrawal, as in Ireland, is being ploughed back into the housing market via contributions to children's house purchase and the buying of second and investment homes," the report notes.

The debt monster is biggest in Ireland, and it has the most to lose from rising rates.

Anecdotal: A receptionist where I work, has bought an "up-market" apartment in Bulgaria. She doesn't really know where, you see neither her or hubby have ever been to Bulgaria. In fact, she doesn't know much about the country. They bought because "lots of their friends have" already. :blink:

On the radio this morning, one property development commercial actually claimed:

"Property in Turkey goes up 20%-30% a year" - no caveats or warnings, nothing. These guys can really say what they damn well like, just to get you to throw tens of thousands of borrowed Euro at them.

If you made a claim like that about AIB shares, the regulator would cut off your gonads with a rusty cheese wire. It makes me sick. :angry:

Edited by Flash

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So only second homes in rural Ireland are risk? - implying that your primary residence in Dublin is never under threat. How stupid is that?

The debt monster is biggest in Ireland, and it has the most to lose from rising rates.

Anecdotal: A receptionist where I work, has bought an "up-market" apartment in Bulgaria. She doesn't really know where, you see neither her or hubby have ever been to Bulgaria. In fact, she doesn't know much about the country. They bought because "lots of their friends have" already. :blink:

On the radio this morning, one property development commercial actually claimed:

"Property in Turkey goes up 20%-30% a year" - no caveats or warnings, nothing. These guys can really say what they damn well like, just to get you to throw tens of thousands of borrowed Euro at them.

If you made a claim like that about AIB shares, the regulator would cut off your gonads with a rusty cheese wire. It makes me sick. :angry:

HPI in spain, and eastern europe is a great way of getting money into the country and increasing and improving housing stock, when money runs out prices should fall back to normal salary multiples seen in these countries. Ofcourse this wont be to original levels as salaries will have increased in these countries because of this new money....

Edited by moosetea

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HPI in spain, and eastern europe is a great way of getting money into the country and increasing and improving housing stock, when money runs out prices should fall back to normal salary multiples seen in these countries. Ofcourse this wont be to original levels as salaries will have increased in these countries because of this new money....

I suppose the bankrupt amateur property investor will at least draw some comfort from the fact that they helped to improve the economies of formerly destitute Eastern European states. :)

Edited by Flash

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This has all gone too far. Ireland is going to suffer deflation - a second potato famine. It will have to decouple itself from the European Central Bank and go it alone for a decade.

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This has all gone too far. Ireland is going to suffer deflation - a second potato famine. It will have to decouple itself from the European Central Bank and go it alone for a decade.

I travel over there very frequently and keep a close eye on things, far too much debt, everyone looking to the government incentive saving scheme Due for maturity in May, to keep thing moving. The savy ones will clear their debts.

One Rural auctioneer on a recent radio programme pleaded with people to "stop the madness", his words.

But on the other hand all the Banks and VI's keep plugging away.

And another factory in the Midlands is closing down after 30 years, 350 jobs off to the far east.

When I mention whats happening here in the UK, slow down etc., no one will listen.

Some one go knock on their door or hit them on the head.!!!!

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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