Bank of Ireland Reveals Demand Resurgence in Property Market

Bank of Ireland's quarterly analysis of the Irish property market, the Irish Property Review published today (Tuesday 15th November), reveals that 2005 is set to deliver a year of low double-digit house price growth, with price inflation of 10% by year-end. It is expected that the strong property market will continue into 2006 and Dr. McLaughlin now estimates that house prices will increase by 5% next year.

Commenting on the findings of the Review, Dr. McLaughlin said: "At the beginning of the year we had expected a gradual deceleration in the pace of house price inflation to 5%. This was based on the fact that supply of property was broadly matching demand, so bringing about equilibrium in the market. New house completions are still running in line with our expectations, however, housing demand has risen as a result of financial and demographic factors".

The key drivers of housing demand include significant growth in household income and favourable demographic factors. During the year there has been a surge in employment growth with the creation of 93,000 jobs in the year to the second quarter, representing a 5% growth in employment, the highest rate of growth over the past 5 years. This has been made possible by soaring immigration, which has accelerated to 70,000 compared to 50,000 a year earlier. This, in turn, has led to growth in household income of around 10%. With inflation averaging at just over 2%, real disposable income rose by 8%.

Dr. McLaughlin stated that: "The implication of this combination of surging employment and soaring immigration is that the demand for housing is running above the consensus estimates and that 75,000 houses may not be actually meeting demand. Support for this view is provided in the rental market where rents have picked up, rising by 2%, so reversing two years of decline".

This continued strong demand for property has had a significant impact on mortgage lending in 2005, which is now expected to reach over €20bn by the end of the year. This will bring total mortgage debt in Ireland to €94bn, representing an increase of 26% on the previous year.

Commenting on the market, Mr. Joe Larkin, Managing Director, Bank of Ireland Mortgages said: "For the first time ever more than 100,000 mortgages will be issued this year with an average loan size of close to €200,000 equating to gross mortgage lending of €20bn in 2005".

In terms of future resilience of the mortgage market, the Irish Property Review points out that we can expect improved affordability, resulting from higher disposable income, to be counteracted by rising interest rates. A 1% rise in the European Central Bank rate is expected during 2006 and as a result the repayment burden will rise. The Irish Property Review states that this is unlikely to precipitate a serious correction in borrowing or house prices, but may, however, dampen mortgage growth in the second half of 2006.

As a substantial number of houses in Ireland have no debt, however, the overall debt service burden relative to household income is relatively low at 6.5%. This compares favourably to the debt service ratio in the UK and US which stands at 8% and 13% respectively.

On the topical issue of interest rates, Dr. McLaughlin stated that: "As a result of regained momentum in the global economy, the rise in US interest rates, accelerated lending in the eurozone, interest rates are likely to occur in the first quarter of next year, if not as early as December this year. Three quarter point moves are expected by the market in 2006, taking the ECB rate to 2.75%".

In its analysis of the commercial property market, the Irish Property Review notes it is performing better than anticipated and a 20% out-turn is "eminently achievable" with the third quarter in the current year seeing the strongest growth since 2000.

ENDS

Tuesday, 15th November 2005

For information contact:

Olive Moran
Marketing Manager
Bank of Ireland Mortgages
Tel:6113525 /086 6622333

Anne Mathews
Media Relations Manager
Bank of Ireland Group
Tel:6043836 /087 246 0358

To access PDF:
Please note that the complete findings of the Irish Property Review can be accessed and/or downloaded directly from Bank of Ireland's website as follows:

Log on to click here