IRELAND’S NEXT HOUSING crash will be caused by a greater supply of houses becoming available coupled with rising interest rates.
Rising interest rates in the Eurozone – which will have an impact in Ireland – could pose a threat to Irish mortgage holders in the early years of their home loans
Hefty increases
Already there are signs that interest rates are on the way up over the next few years which could leave those homeowners on fixed rate mortgages facing hefty monthly increases as their fixed rate term matures.
The global outlook for interest rates is not good for the next few years and home-buyers locking into fixed interest rate terms now need to consider where the extra disposable income will come from at the end of the fixed rate period.
Economists expect the Eurozone economy to continue to expand in 2019 by 1.9% and for growth in the current year to reach 2.4%. There will come a time when low interest rates are no longer required to stimulate the Eurozone economy and to foster consumer spending.
Bubble will burst
The housing bubble will burst and create another credit crunch. Housing stock is set to increase, but so will interest rates which will lead to many people being unable to afford their mortgage repayments.
Those hoping to get on the “property ladder” soon should think long and hard about their options. Higher interest rates coupled with a correction in supply are going to lead to a big issue for many people.
If you’re buying now as a first-time buyer, or you are buying somewhere just to get on the property ladder that is the worst thing to do. There will be major affordability issues and that is going to be our next crisis. I am very concerned that a major correction is coming.
Supply issue
There is definitely a supply shortage issue and once that supply issue is corrected – by Government plans to build a half million houses by 2040 – those buying houses today are going to be deeply affected.
Another issue that I see coming is a massive rise in interest rates. It is very likely that interest rates are going to start to rise in 2019.
If a first-time buyer fixes their interest rate for five years today they could be coming off that fixed rate facing an extra €300 per month repayment if the rates go up by two per cent.
With average wage increases currently lower than increasing house prices, it is highly unlikely that the average mortgage holder will have the extra income to meet higher mortgage repayments in the future.
Negative equity
Uncertainty about Brexit and its impact on the Eurozone economy as a whole as well as on thousands of food and drink-related jobs in Ireland only add to the difficulties facing those hoping to buy their own home. The UK economy – Ireland’s largest market – is already showing signs of zero growth as the deadline for Brexit approaches.
The last housing crash came on the back of a financial crash. We are going to have a different issue this time which will cause negative equity.
When the supply shortage is corrected and interest rates go up you will have a lot of people getting into difficulty paying mortgages, getting rid of houses, or trying to move out.
This will cause a credit problem for people as banks will tighten their belts and start lending far more frugally over the next couple of years.
Paul Merriman is an experienced independent financial advisor and CEO of Pax Financial Planning, founder of AskPaul.ie and CEO of ClearChoice. Paul has over 20 years’ of experience in personal finance and pension planning.
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