House price collapse unlikely, report says

There is no evidence to suggest that Ireland will experience a collapse similar to the housing market crash that occurred in Britain in the late 1980s and early 1990s, according to Goodbody Stock brokers.

In Safe as Houses, a report on the Irish housing and mortgage markets, analyst Mr Oliver O'Shea said the possibility of an interest rate, unemployment or fiscal shock to the housing market was very low at this juncture.

He also found that personal debt gearing and the repayment burden are low in this State relative to Britain.

Personal debt gearing relative to disposable income is just 70 per cent in Ireland compared with 116 per cent in Britain, a level which has not given rise to any serious credit quality problems there despite the higher level of interest rates in Britain.

Meanwhile, interest payments as a percentage of disposable income stand at just 5.9 per cent in Ireland against 11.8 per cent in Britain.

The report also finds that the average loan-to-value ratio on new houses has fallen, despite the strong increase in house prices.

"While income multiples are high by historic standards - though not relative to the UK - affordability remains substantially better than the level which precipitated the UK housing market crisis," says Goodbody, which acts as broker to auctioneers and estate agents Sherry FitzGerald.

"This is due to very low interest rates and a falling income tax burden."

The report finds that a mortgage rate of 9.5 per cent to 13.5 per cent - depending on property type and loan-to-value ratio - would be required to reduce affordability in the Irish market to the levels which precipitated the crisis in the British housing market.

However, Ireland is now a member of the low interest rate euro zone where the structural deficiencies of the core European economies impose a constraint on the potential for interest rates increases.

Goodbody also says that demand for housing in the Republic is underpinned by strong fundamentals, including favourable population trends and strong employment creation, a situation it expects to continue for some time.

It notes that the Government is taking active steps to increase output to address a shortage of supply but expects a lag of two to three years before supply is sufficient to clear the market.

As a result it expects more moderated but continuing house price inflation and strong mortgage asset growth, at least in the short to medium term.