Soaring house prices are taking their toll on Northern Ireland's borrowings and savings, a new report revealed today.
With prices increasing to 9.5 times annual earnings, average monthly mortgage repayments are now 150% of average weekly take-home pay - almost twice the level of a decade ago - and well above the UK average, according to business advisors PricewaterhouseCoopers LLP.
Their latest UK Economic Outlook claims that UK households are borrowing more to fund mortgage repayments and spiralling consumer spending, but that income growth cannot support continued spending.
PwC estimates that as much as a fifth of all UK household disposable income now goes to pay interest on borrowings and that levels of debt are rising faster than the growth in earnings. Retail price inflation peaked at 4.8% in March 2007, while Northern Ireland's average wages increased by just over 3.5%.
In 1997, Northern Ireland property prices were around four times annual earnings, roughly the same as the rest of the UK. Now they have jumped to nearly 9.5 times annual earnings - 16 per cent above the rest of the UK - and with Northern Ireland average wages just over 80 per cent of the UK average, rocketing house prices are taking their toll on disposable incomes.
Northern Ireland's average monthly mortgage repayments are now 150% of average weekly take-home pay - almost twice the level of a decade ago - and well above the UK average.
Philip McDonagh, chief economist with PricewaterhouseCoopers in Northern Ireland, said: "While the local economy continues to perform reasonably well, households are facing a financial squeeze due to a combination of modest earnings growth, rising domestic rates and utility bills, higher petrol prices and increased debt repayment costs.
"As a result, the amount of money left over to spend on other goods and services has grown much more slowly than headline indicators like GDP might suggest.
"Looking ahead, rising debt service will contribute to slower consumer spending growth over the next two to three years and this will impact the services sector, which has underpinned economic growth in recent years."
The UK Economic Outlook also says that 10 of the 12 UK regions have experienced a real fall in disposable income growth since 2000, with Wales and Northern Ireland the exceptions.
However, even in these regions, disposable incomes grew by less than half a percent and these gains will have been wiped out by a combination of 2006-07 house price inflation, rates increases and recent interest rate rises.
PwC says that the continued decline in UK manufacturing and constraints on consumer expenditure will slow overall UK economic growth from 3% in the year to Q1 2007, to around 2.75% in 2007 and 2.5% in 2008.
Northern Ireland growth is also forecast to moderate slightly during 2007-08, to broadly reflect UK average growth in 2008. Nevertheless, continued public expenditure and a buoyant services sector will keep Northern Ireland economic growth slightly above average during 2008.
The UK Economic Outlook says that interest rates will probably rise to 5.75 per cent in the short term and could reach 6% by the end of the year, but are unlikely to rise above this level.
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