Killarney

<h3>Inflation is an inherently personal thing. We quantify it in general terms with headline figures, but don&#8217;t be fooled. Inflation isn&#8217;t the same for everyone.</h3>



In Ireland, the inflation rate has fallen over the past few months from 9.6% in July to 7.7% in December, but this doesn&#8217;t mean that everyone&#8217;s life is now 7.7% more expensive.



How inflation affects you will differ depending on your age, location, job, savings and investments.



There will be winners and losers: net buyers and net sellers.



Let&#8217;s take an example.



You bought a house before 2020 vs. you&#8217;re looking to buy a home in 2023.



For those who bought pre-2020:



Initial fixed rate at 3% or lower (many of these will be approaching their fixed rate cliff) Up to 40% increase in home value since purchase Your mortgage repayments have remained constant while the value of your home has increased dramatically.



Yes, you&#8217;re paying more for eggs, but your debt as a percentage of household net worth is considerably lower.



You&#8217;re wealthier now than you were before the pandemic, in both absolute and relative terms, due to the inflation tied to your most significant asset.



Over two thirds&nbsp;of the Irish population have a mortgage or own their home outright.



For many of these, inflation has been a net positive due to the housing effect &#8211;&nbsp;a wealth-creation event.



For those looking to buy a home now, the past three years have created a very different scenario.



<h3>Wealth destruction</h3>



According to the Central Statistics Office, the average house price index has gone from €293,000 to €359,000 since 2019, an increase of €66k. Mortgage rates are now starting to increase. This is set to continue as the ECB looks to raise its deposit rate to 3.5%. (ECB rates were negative in 2019). As such, recent inflation has had a materially negative impact on both the purchasing power of the savings accumulated to buy a house and the future debt burden that the mortgage represents. The same inflation. Two very different outcomes.



<h3>The property divide</h3>



This is the very essence of how wealth gaps materialise, playing out in real time at an accelerated pace.



Many factors drive wealth inequality in Ireland, but it&#8217;s bizarre to think that the side of the wealth divide you find yourself on may be determined by simply asking the question.



Did you own a home before the pandemic started or not?



With 70% of Irish wealth tied up in housing, the wealth effect of rising house prices is particularly strong relative to the rest of the world.



<h3>Remedies</h3>



Don&#8217;t just listen to the headline numbers. Figure out how inflation is affecting you personally.



Are you being crushed by rising prices, or are you a net benefactor as prices increase?



Everyone isn&#8217;t on the same boat here. The sooner you realise this, the sooner you can do something about it.



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