THOSE AGED BETWEEN 35 and 45, who bought their homes at the peak before the recession, will be the most impacted group of society if mortgage interest rates rise.

Mark Cassidy, Director of Economics and Statistics for the Central Bank of Ireland said this group of people who bought prior to the recession, are one of the most indebted and the “most vulnerable” to any income, house price or interest rate shocks.

Speaking to the Oireachtas Budgetry Oversight Committee today on on economic and fiscal risks, particularly in light of Brexit, Cassidy said while variable mortgage interest rates are higher than in many other EU countries, there is a high number of this vulnerable group on tracker mortgages.

The tracker mortgage rate has stayed relatively low, he said, as it is linked to the European Central Bank rate.

Cassidy said those that bought before the crisis have been largely “protected” due to the affordability of the tracker rate. However, he added that once the tracker rate increases “that cohort will see an increase in their payments” adding that there is a “potential financial risk there”.

While most are paying down their debt, he said the 35-45 age group of homeowners who bought at the peak of house prices in the boom “are highly indebted” and when tracker rates increase “will find themselves more stretched”.

Pay rises 

Despite Brexit, the Central Bank believes workers are in line for pay increases of up to 7% over the next two years.

Combined with expectations of modest inflation, he said it should translate into “higher real incomes and purchasing power for households”.

The Central Bank is forecasting the average increase per employee to increase from 2.8 % last year to 3.4% this year and 3.6% in 2020.

He added that the country is seeing a very high rate in job vacancies, as well as job switching. 

Speaking about the labour market, Cassidy said the unemployment rate is projected to drop from an average of 5.8% last year to 4.9% this year. It is expected to hit 4.7 per % in 2020. 

Brexit

Discussing the risks of Brexit on the Irish economy, he said a disorderly Brexit and the  breakdown in some of the trade and customs arrangements would be immediately damaging to trade and the “functioning of supply chains for production, distribution and retailing”.

“It is clear that a ‘no deal’ scenario would have very severe and immediate disruptive
effects, which would permeate almost all areas of economic activity. Certain sectors and regions would be disproportionately affected, particularly agriculture and food sectors as well as border regions and other rural regions with a heavy reliance on agriculture and a particular reliance on the UK as an export market,” said Cassidy. 

“We estimate that a disorderly Brexit could reduce the growth rate of the Irish economy by up to four percentage points in the first year,” added the Central Bank official.