You may not like it but the good times may have to roll at a much slower pace

The face of Federal Reserve chief, Alan Greenspan, is beginning to haunt the financial dreams of property investors around the State. His decision last Wednesday to approve a quarter-point increase in US rates sent shivers down the spines of investors long enough in the property game to remember double digit rates.

While the Fed's other decision, to return to a neutral bias on monetary policy, will take some of the sting out of the rise, there are murmurs of further increases as the US economy refuses to slow down.

Many economists are arguing that with foreign markets on the rebound and consumers showing little inclination to curb spending, rate cuts approved last year will have to be reversed.

Other market commentators insist that sooner or later, debt-strapped consumers will be forced to spend less and that the US economy will moderate on its own.

Whatever about the validity of either argument, the recent upward shift in US rates raises the prospect of something similar happening in Europe and by extension the Republic. With extremely generous yields coming from commercial properties throughout the State, nobody wants to ponder the idea that the good times may have to roll at a slower pace.

While the quarter percentage point hike has not fed through to Irish rates just yet, those of a pessimistic disposition are considering taking advantage of the more tranquil waters of fixed loans.

As Noel Griffin, head of the Treasury division at specialist property lender Equity Bank, points out, the decision between fixed and variable loans at present "is far from academic".

With variable rates hovering around 2.75 per cent, the extra two per cent premium, which has to be paid for the luxury of having your repayments fixed for a year, is not a casual matter.

"Despite the recent moves by Greenspan and the talk about inflation here in our own economy, there is still a feeling that there is no need to fix," says Mr Griffin.

"The view among many investors we deal with is - if interest rates are going to go up, then they're not going to go up very much," he adds.

He says the decision by Mr Greenspan to raise rates by one quarter will not provoke any great alarm, but another half a percentage point might nudge a few wavering investors towards the idea of fixing.

However, Mr Griffin asserts boldly that the days of double digit rates are over and rates in the future will hover in a "narrow corridor". He says governments and central banks will tweak rates as required, but there will be no sudden swings like in the 1970s and 1980s.

"Interest rates operate now like a dimmer switch rather than an on/off switch," he says. "Because of this, people are more prepared to take the variable gamble," says Mr Griffin.

Another reason the few percentage points which separate variable and fixed loans are important at present is that people have large portfolios.

In the past few years, people have been buying a lot more property and increasing their loan exposure - most of it based on variable borrowing.

"A lot of people are fairly stretched so they may be tempted to consolidate their portfolios by fixing their loans," says Mr Griffin.

Brian Healy, of the commercial lending division of EBS, says while fixed rates have eased slightly upwards, many investors are taking the view that locking in now is an attractive proposition. "If they can get 5 or 5.5 per cent on a fixed loan they're going to take it," he states.

He says EBS's newest customers tend to fix their loan, with the one-year product being one of the most popular choices. He agrees that at present there is a "big premium" between variable and fixed. "You can get a variable rate of about 2.6 per cent, but you are looking at approximately four per cent for a five-year fixed at the moment," he points out.

The decision on rates often depends on the individual investor, he suggests. "People who remember fixing at 10 per cent years ago tend to think they should fix now while the rates are quite attractive," says Mr Healy.

He adds that syndicates always fix their loans and the large pension funds, which are moving back into the market in a significant way, like to fix their rates.

Mr Griffin points out that fixing does not necessarily protect an investor from the slings and arrows of the property business. "You can take a two or three-year fixed rate and when it lapses, rates suddenly rise and you get punished like everyone else," he says. He estimates that of Equity's current loan book, about 30 to 40 per cent is fixed borrowing. A vague rule of thumb is also in operation - the bigger the deal, the more likely the borrower is to fix. "People putting in more than £5 million normally fix the loan, but those investing less are normally prepared to be flexible," he adds.

"The other major problem at the moment is that properties are appreciating so fast in capital terms that somebody can suddenly find their property has exploded in value but they are stuck on a fixed loan and to pay it off will cost them extra," he states.