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WHAT hikes MEAN FOR you and your home

The ECB it seems just can't help itself. From the clowns who raised interest rates in July 2008, just two months before the international economy went into meltdown, we now have the virtual promise of a 0.25pc interest rate increase next month.

This increase is likely to followed by at least three more 0.25pc rate increases over the next year to bring the official ECB rate to 2pc.

What does this mean for hard-pressed Irish homeowners?

With the latest figures from the Financial Regulator showing that a tenth of all mortgages are already in trouble, a further round of rate increases will push tens of thousands more homeowners over the brink.

This latest move by the Frankfurt sado- monetarists will cause yet a further drop in Irish house prices.



PENTHOUSE

The news from the ECB comes as UK auctioneer Allsops publishes a catalogue of properties which it is selling on behalf of banks and receivers next month.

These properties are priced to sell with a two-bedroomed apartment in Portlaoise having a reserve price of just €35,000 compared to the €170,000 Irish auctioneers have recently been seeking for apartments in the same development.

The catalogue also lists a Temple Bar apartment with a reserve price of €85,000 compared to the €140,000 Irish auctioneers have recently been seeking for similar units and a penthouse apartment in Rathfarnham with a reserve price of just €145,000 as against the €275,000 being sought for a ground-floor apartment in the same development.

Next month's auction demonstrates yet again that most Irish estate agents and their clients are still in denial. In fact I would go even further and say that the mindset of most Irish property professionals now borders on the delusional.

What this has meant is that a huge stock of unsold properties has accumulated in the marketplace. Offered for sale at utterly unrealistic prices they have lingered unsold for six, 12 or even 18 months with estate agents either unable or unwilling to break the bad news to their clients that the market has sent them a message and they must cut their asking prices.

Rising interest rates, by forcing even more hard-pressed homeowners to sell up and making it less affordable for buyers to borrow, assuming they can find a bank prepared to lend them the money, will push prices even lower.

But guess what?

While lower prices will be bad news for anyone who is forced to sell, values have to fall further.

Buyers aren't mugs. They can see that the prices being demanded by sellers and their estate agents still don't reflect market reality.



PURGATORY

No one wants to buy a property today only to see someone else buy the house next door for less tomorrow. In other words, we are in a false market. With buyers not trusting the current prices most of them are quite sensibly keeping their powder dry and renting instead. They can see with their own eyes tens, possibly hundreds, of thousands of distressed sellers, dearer money and massive over-supply. Faced with this reality there is only way prices can go, and it ain't up.

My guess is that with prices having already fallen by 50pc they will have to fall by a further 50pc from their current levels, i.e. a total fall of 75pc before buyers can be tempted out in significant numbers. For many homeowners their Purgatory has only just begun.