Madam, - The likelihood that the Bank of England may increase interest rates for the first time in three years should be a salutary warning to the overheated Irish housing market. Where the Old Lady of Threadneedle Street goes, other central banks are sure to follow, sooner or later.
Even the current low-interest climate, many first-time buyers are stretched to meet mortgage repayments. If interest rates should rise by 2 per cent over the next three years, repayments on a 90 per cent 30-year mortgage at 3.5 per cent a year for a €300,000 house would increase by 23 per cent. On this basis, house prices would need to fall by about 18 per cent for a buyer's monthly repayments to stay at their current level.
Rising interest rates could move many recent and future buyers with large mortgages into negative equity and expose their lenders to defaulting loans. It could also mean that many houses acquired as investments might be offered for sale to lock in gains or to cut losses. This would further depress prices. Can nothing be done to prevent this calamitous event from happening? - Yours, etc.,
BRIAN FLANAGAN, Ardmeen Park, Blackrock, Co Dublin.