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Opinion 'The housing bubble will burst and create another credit crunch'

Those hoping to get on the “property ladder” soon should think long and hard about their options, writes Paul Merriman.

IRELAND’S NEXT HOUSING crash will be caused by a greater supply of houses becoming available coupled with rising interest rates.

Rising interest rates in the Eurozone – which will have an impact in Ireland – could pose a threat to Irish mortgage holders in the early years of their home loans

Hefty increases

Already there are signs that interest rates are on the way up over the next few years which could leave those homeowners on fixed rate mortgages facing hefty monthly increases as their fixed rate term matures.

The global outlook for interest rates is not good for the next few years and home-buyers locking into fixed interest rate terms now need to consider where the extra disposable income will come from at the end of the fixed rate period.

Economists expect the Eurozone economy to continue to expand in 2019 by 1.9% and for growth in the current year to reach 2.4%. There will come a time when low interest rates are no longer required to stimulate the Eurozone economy and to foster consumer spending.

Bubble will burst

The housing bubble will burst and create another credit crunch. Housing stock is set to increase, but so will interest rates which will lead to many people being unable to afford their mortgage repayments.

Those hoping to get on the “property ladder” soon should think long and hard about their options. Higher interest rates coupled with a correction in supply are going to lead to a big issue for many people.

If you’re buying now as a first-time buyer, or you are buying somewhere just to get on the property ladder that is the worst thing to do. There will be major affordability issues and that is going to be our next crisis. I am very concerned that a major correction is coming.

Supply issue

There is definitely a supply shortage issue and once that supply issue is corrected – by Government plans to build a half million houses by 2040 – those buying houses today are going to be deeply affected.

Another issue that I see coming is a massive rise in interest rates. It is very likely that interest rates are going to start to rise in 2019.

If a first-time buyer fixes their interest rate for five years today they could be coming off that fixed rate facing an extra €300 per month repayment if the rates go up by two per cent.

With average wage increases currently lower than increasing house prices, it is highly unlikely that the average mortgage holder will have the extra income to meet higher mortgage repayments in the future.

Negative equity

Uncertainty about Brexit and its impact on the Eurozone economy as a whole as well as on thousands of food and drink-related jobs in Ireland only add to the difficulties facing those hoping to buy their own home. The UK economy – Ireland’s largest market – is already showing signs of zero growth as the deadline for Brexit approaches.

The last housing crash came on the back of a financial crash. We are going to have a different issue this time which will cause negative equity.

When the supply shortage is corrected and interest rates go up you will have a lot of people getting into difficulty paying mortgages, getting rid of houses, or trying to move out.

This will cause a credit problem for people as banks will tighten their belts and start lending far more frugally over the next couple of years.

Paul Merriman is an experienced independent financial advisor and CEO of Pax Financial Planning, founder of AskPaul.ie and CEO of ClearChoice. Paul has over 20 years’ of experience in personal finance and pension planning.

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    Mute mac
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    May 16th 2020, 2:56 PM

    Fire took place at scrap yard ,that shouldn’t be there .last comment deleted because journal didn’t like the question asked.

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    Mute Billy McNamara
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    May 16th 2020, 5:45 PM

    @mac: Is teh Journal avoiding a possible controversial subject? I doubt it ,not the Journal.

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    Mute NotaWarder
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    May 16th 2020, 3:55 PM

    Culture boss

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    Mute Mattress Dick
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    May 16th 2020, 2:21 PM

    Rumour has it, it can been seen from outer space

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    Mute Al Fresco
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    May 16th 2020, 2:59 PM

    @Mattress Dick: they say that the moon can be seen from the Great Wall Of China!

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    Mute biggybald
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    May 16th 2020, 3:04 PM

    @Mattress Dick: How is Mick? Dick

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    Mute Mick Scanlan
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    May 16th 2020, 9:26 PM

    @Mattress Dick: south side saw it thats neae enuff outer space

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    Mute Louis Jacob
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    May 16th 2020, 2:45 PM

    I’m from Cork so it doesnt put me up or down but if that was in South Dublin, they definitely wouldn’t just write south Dublin in the headline. You fellas are gas up there in the big Smoke (OOOOOHHHHH!)…

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    Mute Paul Cunningham
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    May 16th 2020, 2:48 PM

    @Louis Jacob: Ballymun has a reputation to keep up as the leading car burning suburb in the city, lest it loses this prestigious title to Citywest!

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    Mute Vin
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    May 16th 2020, 4:26 PM

    @Louis Jacob: Someone from Cork announcing they’re from cork. What a surprise, you lads are some craic.

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    Mute Louis Jacob
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    May 16th 2020, 7:05 PM

    @Vin: Only as a way of saying I dont care. We are superior. Everyone knows that.

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    Mute IRL77
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    May 16th 2020, 10:21 PM

    @Louis Jacob: people’s republic of cork….please make it happen if only to hear less of their moaning.

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    Mute thesaltyurchin
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    May 16th 2020, 3:07 PM

    used to count burnt out cars in the same field near Adamstown from my train commute, daily the number could change from two to five or six, then they’d be cleared, few days later same again. need more cameras on roads over here.

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    Mute IrishRedLFC
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    May 16th 2020, 2:51 PM

    Some carbon emissions out of that.

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    Mute Brendan McCarron
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    May 16th 2020, 3:03 PM

    @IrishRedLFC: Fine Gael will tack it onto the carbon tax

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    Mute Monty Donotno
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    May 16th 2020, 5:40 PM

    @IrishRedLFC: dioxin emissions pretty high as well

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    Mute David OShea
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    May 16th 2020, 3:11 PM

    Looks like it’s not in Ballymun itself. It’s across the motorway (M50), right in front of the NCT testing place.

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    Mute Goldie Locks
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    May 16th 2020, 3:41 PM

    @David OShea: where the halting site is? Hope all unharmed.

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    Mute Barry Evans
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    May 16th 2020, 4:27 PM

    @Goldie Locks: only singed eyebrows from starting it……

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    Mute David OShea
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    May 16th 2020, 7:45 PM

    @Goldie Locks: Yeah, the site towards the entrance of the NCT centre by the looks of it.

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    Mute satguy
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    May 16th 2020, 3:46 PM

    We will say a few prayers that everyone in the halting site is OK .

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    Mute Barry Evans
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    May 16th 2020, 4:26 PM

    @satguy: “Tis alright Boss, we’s just havin a BBQ, culture and all that”

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    Mute DeeM
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    May 16th 2020, 4:45 PM

    I passed the scene of this fire.. It was at a halting site near the NCT centre on the airport side of the M50 beside Silloge golf course. All residents evacuated… Fire tenders and gardai all over the place. Hope no one was hurt or worse.

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    Mute Jake Kelly
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    May 16th 2020, 2:59 PM

    Lighting the beacons was way less hassle in lord of the rings

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    Mute Mel Finn
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    May 16th 2020, 2:45 PM

    Its everyone rushing to queue at hardware stores

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    Mute Martin Smith
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    May 16th 2020, 10:12 PM

    It just a culture thing nothing more……..

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    Mute Joe Kelly
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    May 16th 2020, 5:46 PM

    Can you see it from the Curragh??

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    Mute Joey
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    May 16th 2020, 8:38 PM

    @Joe Kelly: Was probably the Generator cables that were stroked from the race course before xmas 2019

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    Mute Dublin Stoner
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    May 16th 2020, 3:18 PM

    Jusus holy smokes

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    Mute Claudio Cavaliere
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    May 16th 2020, 3:35 PM

    The Others are coming

    https://youtu.be/isQ94ATC4Bw

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    Mute Shane Doyle
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    May 16th 2020, 4:42 PM

    Love the little competition which seen it the Further away

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    Mute JohnnyMc
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    May 16th 2020, 5:41 PM

    @Shane Doyle:That’s easy for you to say

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    Mute Hotirish
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    May 16th 2020, 4:17 PM

    Last of the Ladas.

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