\nProperty prices in Ireland could fall as much as 45% from the peak of the market in late 2006 due the economic downturn and increased costs of funding the banks, it is claimed.\n<\/p>\n
\nPrices have already fallen 24%, according to Fitch Ratings and the average house is currently worth 7.5 times the average income, a ratio that is expected to fall to nearer 5.5 times the average individual income.\n<\/p>\n
\n\u2018Tax rises, high unemployment, wage deflation and property supply overhang continue to undermine the country’s property market,\u2019 said Alastair Bigley, Head of Irish RMBS at Fitch.\n<\/p>\n
\nThe ratings agency warns that despite almost three years of house price declines, prices have yet to reach a sustainable level of affordability.\n<\/p>\n
\nRising unemployment is a particular concern. Unemployment is predicted to reach 12.5% by the end of 2009 and rise to 15% in 2011.\n<\/p>\n
\nThe difficult market will be further pressured by a rise in the cost of funding to financial institutions, driven by a higher than expected cost of the European Union’s guarantee of banks’ debt issuance compared to the current Irish state guarantee and a rise in interbank lending rates, Fitch also says.\n<\/p>\n
\nFitch analysts also expect all lenders to increase their mortgage rates.\n<\/p>\n
\n\u2018It seems certain that mortgage affordability will suffer against a backdrop of a generally higher tax burden, increasing unemployment and negative to zero wage inflation,\u2019 said Michael Greaney, associate director in Fitch’s RMBS group.\n<\/p>\n
\n\u2018Fitch therefore expects further house price declines and late stage mortgage arrears to rise,\u2019 he added.\n<\/p>\n
\nThe warning comes days after Brian Lenihan, Ireland’s finance minister, admitted that the country was on the brink of a debt compound spiral that risks a further doubling of public debt to \u20ac160 billion by 2013.\n<\/p>\n
\nWhile the European Central Bank has cut interest rates to 1%, the full benefits have yet to filter through to Irish households.\n<\/p>\n
\nFitch said interbank lending rates have risen substantially, \u2018reflecting market concerns over the creditworthiness of Irish banks and the Irish Sovereign\u2019.<\/p>\n","protected":false},"excerpt":{"rendered":"
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