Doing sums

Apr 7th, 2011 | By | Category: Ireland

In schooldays, lights out was at 10 o’clock.  A housemaster would patrol the corridors to ensure that not only lights were out, but also that there was no talking.  Doing anagrams and sums in the head became a way of filling time when it was hard to sleep.  The habit of doing sums has persisted, so when RTE reported that the 0.25% increase in interest rates would represent a €40 per month increase in monthly payments for someone with a €300,000 mortgage, the making of a cheese and pickle sandwich was interrupted by the need to use the fingers for counting.

An earlier report on the radio said that 600,000 borrowers would be affected by the rise in interest rates.  If the impact on a mortgage of €300,000 was being quoted by our national broadcaster, then this is presumably a typical sum owed (I once met a woman who had a mortgage for in excess of €5 million, but one assumes that is not common).  So if the typical mortgage sum outstanding is €300,000 and the likely cost of the rise is €40 per month, then the annual cost is €480.  If this is really the average cost and one spreads that cost across 600,000 mortgages then the total annual cost would be in the order of €288,000,000.  A learned economist on the television news suggested that there would be a further three rises in the coming year, bringing the total increase to 1% (a doubling to 2 % from the former ECB rate of 1%).  If each 0.25% rise costs €288,000,000, then a 1% rise would cost something in excess of €1.1 billion.  Even worse, one economist thought that Europe would move towards a rate of 4%.  This would not mean a quadrupling of mortgage payments, but the need for banks to remain solvent would require further substantial increases in borrowers’ monthly liabilities.

At a time when our tiny economy is teetering on the point of collapse because of the huge debts incurred by the banks and the requirement to service loans from the IMF and ECB is going to consume billions of our annual income, the increase in interest payments represents one more downward pressure on the economy, and one more hardship for families who are already struggling.   To carry on as we are is not a tenable position; no-one who has the capacity to earn money and do well is going to want to stay in a country where more than 50% of their income is going to pay off the debts of the greedy and irresponsible; the departure of many of the brightest and best will simply exacerbate the downward spiral. If a plodding, country cleric can work out such sums while making his tea, presumably there are very clever and intelligent people who have done similar sums and who are ready to explain to us how we are going to cope.


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