Fitch has said it expects repossessions of properties to increase here, but only as a last resort.

The ratings agency says long-term restructuring of mortgages will become more prevalent as a framework for dealing with arrears takes shape.

It expects tools such as split mortgages or trade-down products for borrowers in negative equity will be used first, followed by Personal Insolvency Arrangements.

It concludes that the Land and Conveyancing Law Reform Act will create incentives for lenders and borrowers to agree longer-term alternative repayment arrangements.

Fitch believes lenders have started deploying longer term strategies now that short-term arrangements, such as principal payment holidays, have often failed to restore borrowers to performing status.

The report says that the new code of conduct on mortgage arrears should accelerate discussion of arrears problems between borrowers and lenders, and "limit the risk that the prospect of debt relief reduces willingness to pay."

"Discussions with lenders suggest they will deploy their own restructuring tools first, before moving on to a Personal Insolvency Arrangement if necessary," the report concludes.

"Repossession will be the final resort. The number of borrowers in negative equity means that lenders may not want to repossess a distressed property and crystallise a larger loss. Nevertheless, all three options are likely to involve losses for mortgage pools, if not through recovery shortfall then through debt write-off."

Meanwhile, Standard and Poors has added its voice to the budget debate telling the Irish Times that any significant departure from the €3.1 billion in projected savings next year could lead to a wide deficit than expected.