Mortgage rates to remain low amid Brexit uncertainty
Growth cut: EU’s forecasts for eurozone are slashed by a third Borrowers: Irish households to get reprieve on debt repayments
MORTGAGE holders here can breathe a sigh of relief as the threat of an interest rate hike in the next two years is receding.
The EU yesterday cut growth forecasts for the eurozone as the threat of a crash-out Brexit continues to loom.
Ireland’s borrowers are set for a reprieve as the European Central Bank (ECB) now looks certain not to raise interest rates in 2019.
It is also likely it may not even manage to do so in 2020.
Amid the uncertainty of Brexit, the EU cut its forecasts for eurozone economic growth by a third yesterday.
That means it won’t be able to normalise interest rates, which are trapped at all-time lows, without risking an even greater slowdown.
German banking giant Deutsche Bank is now forecasting there will be no ECB rate hike until December 2020.
Raising rates would hit hundreds of thousands of borrowers here.
More than a decade after the crash, Irish households are the fourth most heavily indebted in Europe.
Data released by the Central Bank yesterday showed that household debt here was €137.5bn at the end of September last year.
The 300,000 borrowers with a tracker mortgage benefit most from the low rates, as do a similar number of households on variable-rate mortgages.
Interest on trackers is linked to the ECB rate, and if rising rates meant it was more expensive for banks themselves to borrow, those increased costs could be passed on to variable-rate customers.
The European Commission yesterday projected Ireland’s economy will grow 4.1pc this year.
This is the joint-second highest in the eurozone, but down from a 4.5pc projection in November.
The Commission slashed its overall growth forecast for the eurozone to 1.3pc, down from 1.9pc.
Downgrades were especially sharp for Italy, the bloc’s third-largest economy which is already struggling with the budget confines of the Stability and Growth Pact; and for Germany, the economic powerhouse of Europe which has ridden a post-recession export boom that has now come to an abrupt halt.
The outlook for inflation was also lowered.
As the Brexit date of March 29 looms, a disorderly Brexit would exacerbate the problems seen in the big European economies.
Fog
Indeed, the Bank of England yesterday also cut its forecast for 2019 UK growth to 1.2pc.
Governor Mark Carney blamed “the fog of Brexit” for the downgrades.
He added: “Brexit is causing short-term volatility in the economic data and, more fundamentally, it is creating a series of tensions in the economy, tensions for business.”
He was asked at a press conference whether he regretted that the UK was leaving the EU when he woke up every morning.
“I don’t wake up in the morning any more...I wake up in the middle of the night,” he replied.
Mr Carney also told reporters that “not everything may be tied up in a nice package” by Brexit day.
“There is still almost as wide a range of possibilities as there were the morning after the referendum,” Mr Carney said.
Sterling initially fell a quarter of a cent against the dollar, touching a two-week low, but was up on the day after Mr Carney mentioned the probability of an economic pick-up if a Brexit deal is done.
Meanwhile, the EU Commission’s decision to cut its eurozone forecasts raises questions as to whether the 19-member currency area has really escaped the grip of the financial crisis.
The good news for Ireland though is that most economic forecasts see the economy here continuing to expand, despite slower European growth and the risks and uncertainties of Brexit.
Strong economic and jobs growth has enabled many households to reduce their debts and, since its peak in the third quarter of 2008 at €204.2bn, household debt has decreased by 33pc, according to the Central Bank.
Paralysis
European shares were hit yesterday after the EU Commission cut its forecasts.
The Iseq index of Irish shares lost 2.14pc, or €1.8bn in overall value terms.
There’s now a real risk of policy paralysis at the ECB until a successor to incumbent president Mario Draghi is found.
Mr Draghi, nicknamed ‘the man who saved the euro’, is due to depart the role in the autumn.
His successor will be confronted with a eurozone economy facing into stormy waters.
Ireland’s Central Bank Governor Philip Lane, who is set to become the ECB’s new chief economist, will have an important role in navigating the ship.