Ireland has fallen behind Greece of having the highest interest rates in the euro zone. Irish interest rates are currently standing at 3.04%. The average interest rate of the euro zone is 1.79%. The 2 per cent difference presents many differences and issues in Ireland’s economy and more specifically the housing market.
High interest rates affects spending of both businesses and consumers. The cost of borrowing money increases while interest rates also rise. Often, the higher the interest rates leads to less spending, borrowing and investing by businesses and consumers.
Why are Irish interest rates among the highest in the euro zone?
Enforcing security on a mortgage is much prominent and more complex here than in other countries of the euro zone. In other countries, it is common to seize a property when individuals cannot pay off their mortgage debts. Thus, interest rates are so high here to ensure that banks will enough assets to minimize losses if something were to go wrong.
Lending has become less attractive because the uncertainty of returns on loans. Because repossessions are not tolerated in Ireland, as long as this approach remains, interest rates here will always remain higher than the euro zone average.
Interest began to slowly rise in September of 2018 for the first time since the economic crisis. Although the rise in rates signifies that the economy has been growing, heightening rates could help stabilize growth. The main reason that this insecurity exists because of the financial crisis. High interest rates help consume any likely future losses, and therefore potential bailouts can be reduced.
What are the implications of high interest rates?
High interest rates of Ireland effects all of those who have mortgages. In comparison to other eurozone nations, the Irish are paying much more every month on their mortgages as a result of higher interest rates.
Mortgage bankers must be careful about the loans for mortgages give because of the high risk associated with giving mortgages due to the lack of ability to repossess property due to mortgage arrears.
Irish consumers could be defined as the group of individuals who bare the burden of further possible increase in interest rates. Consumers must adjust to higher interest rates and continue to make changes if rates continue to rise. Any increase in in global interest rates will affect the spending power of Irish consumers significantly more than those in other euro zones. This increase in rates of the European Central Bank is inevitable because rates have been so low. Ultimately, Irish consumers must be aware of trends in interest rates and manage their spending accordingly.
