The average price for a new home has risen by 70 per cent in the last three years (from £60,855 to £105,061), according to the latest Irish Permanent house price index.

However, the findings suggest that the rate of increase is stabilising as initiatives to stimulate supply come on stream.

The index, compiled in association with the Economic and Social Research Institute, shows that national house prices rose by 7.3 per cent over the first six months of the year in contrast to a 13.6 per cent increase over the same period in 1998.

In June, the index rose by 1.3 per cent - similar to the 1.2 per cent increase in May.

In line with recent trends, Dublin house prices continue to rise at a faster rate than the rest of the State although the gap has closed. Dublin houses experienced an 8.6 per cent price growth while house prices outside the capital grew by 6.8 per cent.

Mr Billy Kane, Irish Permanent's chief executive, said that last year's peaks in price growth were due to "section 23 run-offs and other tax reliefs" when investors availed of incentives before they were phased out by the Government. However, investors were still active in the market and were purchasing higher-value properties.

Investors' average mortgages amounted to £87,000 this year, compared to £64,000 for a first-time buyer and £56,000 for a second-time buyer. "What the figures are showing is the quality of business being done across the industry remains strong," he said.

Mr Kane added that in comparison to Britain, mortgage-holders were still borrowing less of the total value of their property, an indication of the health of the equity market. Lenders will allow up to 92 per cent of a property's value to be borrowed but the average first time buyer's loan to value (LTV) ratio is 74 per cent, compared to 81 per cent in Britain.

"Even at the height of the Irish property market, what we are seeing is a stable LTV ratio," Mr Kane said. The average Dublin house in the second quarter of 1999 cost £130,282. The average price for a house in the rest of the State was £95,831. In 1996, they were £68,884 and £62,801 respectively. However, with indications that new house completions this year will exceed last year's 42,000, and strong "demographic demand" remaining, the housing market is likely to remain buoyant.

The Irish Permanent's house price index is based on the data it collates from its 23 per cent share of the new mortgage application market.

Mr Diarmuid Bradley, head of strategy in Irish Life & Permanent, said it had been set up with the same methodology as the Halifax index in Britain, factoring out variables such as changes in house composition.