The Irish economy is set for another bumper year and the bad news for home hunters is that house prices are going to continue rising in double digit figures, while interest rates will also be going up.

Most of the world's economies are now moving fairly firmly out of recession, while the US is enjoying yet another year of above-average growth and low inflation.

Things are even looking up in the Far East, which will add a further boost to western economies as exports pick up.

However, as Europe and the UK pick up, inflation fears are coming more to the fore. With more money in all the economies, consumer spending is picking up. This is putting pressure on the prices of domestic goods, as well as imports, as other countries also pick up steam.

According to Jim Power, chief economist at Bank of Ireland, in the US and in the UK, interest rates will rise by one percentage point to 6.5 per cent over 2000.

A similar increase is also expected in the euro zone, where, according to Mr Power, interest rates will be 4 per cent by the end of the year. As a result, variable mortgage rates are likely to be about one point higher than currently, or around 5 per cent and they are likely to be about 6 per cent by the end of 2001, according to Mr Power.

This would mean repayments rising from around £605 for a £100,000 mortgage over 20 years to around £665.

Of course, this is still a lower amount than most people were paying only a year ago. However, crucially, this time expectations are in the opposite direction. A year or two ago, some people may have taken on uncomfortably large mortgages in the belief that their repayments would fall. They were proven correct. Now, though, those old repayments are once again in prospect.

This is also true of fixed-rate mortgages, which are also likely to become more expensive over this year as markets price in the implication of global economic growth. As a result, five-year rates are likely to be as high as 7.3 per cent at this time next year. This could mean repayments rising from £735 for a £100,000 mortgage over 20 years to around £780.

The same holds true, although perhaps to a slightly lesser extent, for shorter term fixed-rate loans. These are currently on offer at around 5.8 per cent and could be as high as 6.6 per cent at the end of the year.

Of course, they have already risen quite substantially, and borrowers have missed the cheapest loans which were on offer around last summer. As a result, if these predictions prove true, most people should be better off staying in a variable rate loan rather than paying the extra for a fixed rate.

However, the usual caveat does of course apply. If you have a particularly large loan or you would really feel it if rates were to increase above these levels, it may be better to pay the additional charges for the certainty and peace of mind fixed rates bring.

Of course, it is also very possible that rates will rise by far more than the markets are anticipating. Some events - e.g. the fall of the Berlin Wall or the oil crisis - are simply not predictable.

So, if you do feel uncomfortable about paying a higher rate, another option could be to fix part of your loan and keep the rest at a variable rate. That would also allow you the flexibility to pay off part of the loan early if the unexpected should happen and an inheritance or bonus arrives.

Remember that you usually cannot pay off a fixed-rate mortgage early, and they are usually very expensive to get out of.