Bank of Ireland's latest review of the Irish property market suggests that house price growth will start to slow in the autumn as euro zone interest rates move higher.
The bank's chief economist, Dan McLaughlin, says the market is currently buoyant, boosted by low interest, strong employment growth and high levels of immigration. He says annual house price inflation could reach 13% in the next few months, but the figure for 2006 will be around 9%.
The economist is expecting interest rates to rise from the current 2.5% to 3.5% by the spring of 2007. He points out that tracker mortgages, which move in line with the ECB rate, are now the most popular type of mortgage. Dr McLaughlin says the standard variable rate could reach 4.75% by mid-2007, and this will dampen affordability. As a result, he expects house price growth to slow to 3% in 2007.
The economist describes recent figures on house completions as 'extraordinary'. 81,000 homes were built in 2005, 26,000 in the last three months. He expects 85,000 to be completed this year, which is half of the total number in the UK. Dr McLaughlin expects mortgage lending to grow by 25% this year.
On affordability, he estimates that total interest payments will rise from 6.5% to 8% of disposable income in 2006 - still low relative to the UK and US.
