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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 Don't Even Start
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    Jun 13th 2020, 12:14 AM

    Jesus….lockdown will be over by the time I finish reading this article! ;-)

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    Mute John Doyle
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    Jun 13th 2020, 12:29 AM

    @Don’t Even Start: you’re right, its over

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    Mute Seriousnojoke
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    Jun 13th 2020, 12:30 AM

    @Don’t Even Start: A bit of data visualisation would be good..

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    Mute Stephen
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    Jun 13th 2020, 1:25 AM

    Just thank the man above SF were not in charge. I’ll say no more.

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    Mute Hello DAVE!
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    Jun 13th 2020, 2:04 AM

    @Stephen: you live in the flat below Mìchael?

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    Mute David Corrigan
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    Jun 13th 2020, 6:33 AM

    @Stephen: Clearly you are a very simple sort of fellow if you think like that. The outcome i.e. where we are today would be the exact same no matter which of our political parties were in charge. The countries response to this crisis was driven and managed by our medical experts.

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    Mute Brian Madden
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    Jun 13th 2020, 7:38 AM

    @Stephen: Tony Holohan is running the show. Mary Lou wanted an even stricter lockdown.

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    Mute Sinead Ni Coscraigh
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    Jun 13th 2020, 10:11 AM

    @Stephen: G

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    Mute Frank Carty
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    Jun 13th 2020, 4:35 PM

    @Brian Madden: yet NI were much slower to enter lockdown than us, and their pandemic payment is less.

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    Mute John Doyle
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    Jun 13th 2020, 12:28 AM

    And not a mention of nursing homes, other than they sought to ban visitation.

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    Mute Hello DAVE!
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    Jun 13th 2020, 12:47 AM

    Been here since Christmas… and feck the most vulnerable… can’t get a hospital appointment….But Penny’s is open. Gwan the Caretaker Government.. taking care of Denise etc. Cos the masculine in toxic ffs!

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    Mute Hello DAVE!
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    Jun 13th 2020, 1:52 AM

    @Hello DAVE!: is

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    Mute Tanks a Minion
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    Jun 13th 2020, 3:46 AM

    Compare the dates with Australia and NZ, that will show how wrong Ireland got it.
    https://en.wikipedia.org/wiki/COVID-19_pandemic_in_Australia
    102 deaths from 25.5 million in Oz, two cities with the population of Ireland, direct flights with China.

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    Mute Criostoir Mac Ranghaill
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    Jun 13th 2020, 1:52 AM

    Will someone please go and tell the government, their advisors and the health experts to pull up their trousers
    Its all over now

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    Mute Hello DAVE!
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    Jun 13th 2020, 2:05 AM

    @Criostoir Mac Ranghaill: for 1300 most vulnerable!

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    Mute Criostoir Mac Ranghaill
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    Jun 13th 2020, 2:48 AM

    @Hello DAVE!: Most of them are already in their eternal resting place from the nursing homes fiasco

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    Mute Hello DAVE!
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    Jun 13th 2020, 12:50 AM

    Did superholo get his cervical check yet?

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    Mute Stewart O Neill
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    Jun 13th 2020, 7:50 AM

    Our response should have been to close all airports. Close the ports which would stop people coming IN with the virus weeks later. A new screening centre in the airport like they have for guns in the states should be introduced if you temp is high then you must be hospitalised end of.
    None of this crap where we were the only country with inbound flights.

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    Mute Frank Carty
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    Jun 13th 2020, 4:37 PM

    @Stewart O Neill: were not the only country with inbound flights. Why would you put someone into hospital because they have a high temperature? Having a high temperature doesn’t mean they have Covid 19.

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    Mute Don't Even Start
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    Jun 13th 2020, 12:32 AM

    :-/ meant to comment on the other article

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    Mute Eileen O'Sullivan
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    Jun 13th 2020, 3:10 AM

    Beyond Covid SpaceX IPO: Why Asteroid Mining Could Launch a Precious Metals Boom https://www.profitconfidential.com/ipo/spacex-ipo-why-asteroid-mining-could-launch-a-precious-metals-boom/

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