City Living: Why are consumers so calm in the face of interest rate rises, wonders Edel Morgan

The findings of this week's IIB bank and ESRI survey on consumer expectations of the property market over the coming years and how rising interest rates would impact them financially made me wonder if each of the 900 respondents was issued with a Prozac pill before completing the survey.

The results, revealed on Monday, show Irish consumers to be a mellow, moderate, unflappable bunch whose expectations of the property market are modest and who generally seem unfazed by predictions that the European Central Bank (ECB) key interest rate will rise above 3 per cent.

The Irish public is no longer taking the bubble view of the property market, preferring a steady-as-you-go approach. Dips, crashes, booms and highs, it appears, are no longer part of their medium-term outlook.

At a press briefing for the survey, IIB Bank's chief economist Austin Hughes said that consumers are "more in agreement this year" compared to previous years with less extreme views of how the market will fare.

Fears of a property crash have abated with less people expecting a decline in prices - 3 per cent - and over 80 per cent expecting some kind of increase. Around 40 per cent put that rise at around 6 per cent. IIB and ESRI economists believe this is a conservative estimate and put the real figure closer to 10 per cent when the SSIA splurge takes effect.

While seven out of 10 consumers expect an interest rate rise this year only one in 14 Irish adults envisage a significant impact on their homes as a result, with 40 per cent seeing a moderate adjustment to their spending.

A minority of around 50,000 "could face a difficult time" should ECB rates rise above 3 per cent, says the report. The study concludes that this suggests that Irish consumers are "reasonably well prepared" for higher interest rates.

So if Prozac doesn't factor in this stoic outlook what does? How come a significant proportion of these people - including those on higher incomes - are not under enough financial pressure to be perturbed about the prospect of rising interest rates? Where are the people like me who have a big mortgage and are paying substantial crèche fees ?

Some older consumers might be buffered from future developments in the market because their mortgage is no longer a burden. Respondents with no property will also be less concerned about the impact of rising interest rates on their finances, unless they have lifestyle borrowings. There is also the possibility that some of the younger respondents are unfamiliar with the financial impact of a rising rate environment. But surely there is a significant sector of society who are living in denial ?

The study concedes there has been concern that the market has not adjusted to the prospect of higher rates and that many Irish buyers are ill-prepared for higher monthly loan repayments. Around 90 per cent of household borrowings are variable or fixed for only one year.

"Only when the peak in borrowing costs is some way behind us will we be able to fully gauge the impact of higher rates on household spending power," says the report.

The SSIA cushion may be insulating a lot of people against the reality of rising interest rates. Around 40 per cent of Irish adults hold an SSIA account and according to the report they are effectively middle Ireland, a little older, wiser, wealthier, better educated and more likely to be householders than the rest of the population .

Among those SSIA account holders who know what they will do with their SSIA windfall, around 10 per cent say they will spend it on Irish property with a further 3 per cent intending to buy foreign property.

Austin Hughes said this suggests that around €2 billion of SSIA money will be spent on property and when related borrowings are taken into account €9-€12 billion would be used to buy Irish property, with another €3-€4 billion invested overseas.

With an average SSIA windfall of €15,000, it is unlikely many are planning to start an investment portfolio. It is more likely to benefit first time buyers who need the extra cash to lift them onto the ladder, parents who want to buy property for their children, or people trading up or buying holiday homes. Some SSIA holders will pool their resources to buy property. Around 13 per cent of non-SSIA holders are also intending to buy property in the coming years.

"The continuing allure of property represents a strong vote of confidence in property values," concludes the study. Irish people are attracted to property because it has proven a sound investment vehicle in the past and because it is an asset class they are familiar with.

When I asked Austin Hughes whether previous consumer forecasts of the market have proven accurate, he half-joked, "as good as most economists". Apparently when compared to an expert panel of 63 economists in a Reuters poll across Europe, the expectations of Irish consumers "appear very reasonable and fairly well informed".