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Irish household debt up, due to mortgage borrowing

01/05/2009

Household debt in Ireland has doubled in the last five years, The Irish Times reports, largely due to the huge increase in mortgage borrowing.

John Kelly, head of statistics at the Central Bank, has pointed out that personal debt in Ireland is rising faster than in the majority of countries in the Euro zone.

Between 2004 and 2006, Irish mortgage debt grew three times as fast as the Euro zone average. Homebuyers were happy to take on mortgage debt as they expected to make money as house prices continued rising - in fact, almost 25% of Irish mortgage debt taken on last year was in the form of buy-to-let mortgages (for landlords wanting to buy property).

Recently, as in the UK, the base rate for Ireland has dropped significantly, and since Ireland has `one of the highest proportions of mortgage debt at variable interest rates`, the country`s mortgage holders have benefited greatly from these drops.

As The Irish Times puts it: `recent interest rate cuts by the European Central Bank have produced savings in mortgage interest rate payments for Irish borrowers of €3.5 billion this year, or €2.5 billion when tax relief is allowed for. This benefit had accrued mainly to the most indebted households, which needed it most.`

On the other hand, it also means the average Irish mortgage holder is particularly likely to lose out when interest rates rise again, increasing the cost of servicing their mortgage debt.

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