Household Spending Suffers as Interest Rates Rise Again

22 July 2011 - Which Way To Pay

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Household Spending Suffers as Interest Rates Rise Again

New figures based on the estimated amount of Irish household debt have shown that the rise in interest rates is bleeding the economy of millions. The current household debt of €134bn credited to*mortgages, personal loans and card debt - as well as buy-to-let debts - is set to rise alongside the relentless interest rate increase; every 0.25pc increase is estimated to now cost households an extra €335m. This news comes as Permanent TSB has increased mortgage rates this week whilst AIB have also hitched up their personal loan and overdraft rates. This comes as no surprise given that the European Central Bank has increased rates twice this year already passing the buck to an estimated 400,000 homeowners who have tracker mortgages. The Bank of Ireland and AIB are the only lenders who have not passed on rate rises to those with variable-rate mortgages over the last to ECB increases.

The Permanent TSB increase comes as their third rise in variable rates this year in a move that has seen some of its mortgage costs top 6pc for the first time in three years. In real terms this means that the PTSB increase has driven monthly costs up this year by almost €100 for every €100,000 borrowed. This comes as worrying news to many Irish homeowners, for 8/10 mortgages in Ireland are on some form of variable rate like the majority of loans.

The Irish Independent economist Dermot O’Leary said that another three ECB rate rises by the end of next year is not unexpected and furthering this, by next year the Eurozone rate will rise to 2.25pc from the present 1.5pc. Speculation aside, the three rate rises this year alone will without doubt take money out of household spending. In comments on this, Mr O’Leary, who estimates €1bn being taken out of household spending said;  “If the banks were properly functioning, the economy would be able to absorb further rate rises, but the lack of availability of credit for businesses and house buyers was hampering a recovery”.

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