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UP YOUR STREET Estate agents play down rate increase



THE second increase in interest rates in just three months is being played down by estate agents, who claim there is no imminent danger to either the mortgage or booming property market.

Thursday's rise of a quarter of one percent by the European Central Bank (ECB) brings the variable Eurozone interest rate to 2.5%, and follows quickly on December's quarter of a percent increase . . . the "rst time the ECB raised rates in almost "ve years.

Current indicators point to at least two more rate increases, again of a onequarter of a percentage point, before the end of this year, bringing the ECB's key policy rate to 3.00%.

Financial markets expect that by the middle of 2007, the rate cycle will increase to 3.50% or possibly 4%, which will have a knock-on effect on the market for "xed-rate mortgages.

Geoff Tucker, economist with the Irish Mortgage Corporation, said rising interest rates introduced at a gradual pace . . . and signalled well in advance . . . do not represent a signi"cant threat to the property market.

"The bulk of any interest rate increase will be offset by rising incomes. The key drivers of demand in the property market are still the exceptionally strong growth in population, coupled with the favourable economic environment and buoyant labour market."

Marian Finnegan, chief economist with Sherry FitzGerald, said that the upward trend in rates was anticipated and will already have been factored into the budgets of potential purchasers. "We believe that this rise will be viewed as a step to halt the pace of price growth rather than an indication of a signi"cant change in economic conditions in mainlaind Europe, and as such will not have a signi"cant impact on the Irish residential market."

In"ation in the Eurozone is undoubtedly a concern of the ECB, says Niall Dunne, "nancial markets strategist with Ulster Bank.

"The next rate hike won't come next month as the central bank is now urging vigilance with a 'wait-andsee' approach as to what effect the latest increase will have on economic activity.

But we could see another hike before summer."

The effect of one quarter of a percent increase on a mortgage with a variable tracker rate of 1.1% above the ECB repo rate over 25 years will increase the monthly repayments by approximately 13 (+3%) for every 100,000 borrowed.




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