Central Bank rejects suggestions of another Irish housing bubble

Number of mortgages in negative equity remains at about 100,000 despite price rises

The Central Bank continues to view the Brexit as posing a “negative and material” risk to Ireland over the long term. Photograph: Matt Kavanagh

The Central Bank continues to view the Brexit as posing a “negative and material” risk to Ireland over the long term. Photograph: Matt Kavanagh


Central Bank deputy governor Sharon Donnery has rejected recent suggestions Ireland faces another housing bubble, saying lending for home purchases remains “subdued” a decade after the last crash.

However, Ms Donnery warned at the publication on Wednesday of the bank’s bi-annual Macro-Financial Review that the Government should stick to a “prudent” fiscal policy.

This was in response to a question at a press conference about indications that new Taoiseach Leo Varadkar intends to loosen economy policy, by easing the Government’s debt-reduction target and using funds previously earmarked for a “rainy day fund” to invest in infrastructure.

“While we see some pockets of growth emerging in credit, particularly with regard to fixed rate mortgages are increasing, the overall situation in relation to credit, I would say, remains subdued,” Ms Donnery said.


Mark Cassidy, head of financial stability at the bank, said its current data analysis “suggests house prices are not currently overvalued”.

With Irish home prices rising at an annual 10.5 per cent rate as of April, amid supply shortages and moves this year by the Central Bank and Government to ease credit access for first-time buyers, the Organisation for Economic Co-operation and Development (OECD) warned last week of “concerns that another bubble may be forming”.

It followed hot on the heels of an alert from the Fiscal Advisory Council here about the risk to the economy of another housing boom.

Central Statistics Office data shows that while residential property have surged by more than 50 per cent from their lows in early 2013, the national index remains 31 per cent below its 2007 peak.

The Central Bank estimates about 100,000 home loans – or 13 per cent of the total – are greater in size the value of the underlying property, despite the rebound in residential property prices. Still, the ratio of homes in negative equity is down from a peak of 40 per cent in 2013.

The bank said that while mortgage arrears have fallen sharply over the past four years, a high level of loans more than two years behind in repayments “remains a cause of concern” as banks face growing regulatory pressure from the European Central Bank to resolve non-performing loans (NPLs).

The value of outstanding NPLs across Irish retail banks has fallen by €10.4 billion - or by a quarter - in the year through March. Still, the level of troubled loans remains at €30.5 billion across the sector.


Ms Donnery said her call on the incoming administration under Mr Varadkar to stick to “prudent” policies comes as the decline in Ireland debt-to-gross domestic product (GDP) in recent years has been flattered by the activities of multinationals and as Brexit remains the key risk for Ireland.

Outgoing Finance Minister Michael Noonan had said that the Republic should aim for a debt-to-GDP ratio of 45 per cent by the mid-2020s given how open the economy is. That compares with a peak of over 120 per cent in 2013, a current level of about 75 per cent and an EU target of 60 per cent.

Mr Varadkar has spoken recently of favouring a less onerous national target of 55 per cent.

Meanwhile, Mr Noonan outlined plans last October to set up a “rainy day” fund after the State returns to a balanced budget in 2018, where up to €1 billion would be set aside every year to build up a buffer in case of a future crisis. However, Mr Varadkar is said to prefer using any additional financial leeway for capital investment in roads, schools, public transport and broadband.