Update 12.30pm: Residential property prices rose by 2% in September, with annual inflation now 12.8% — the sharpest pace since May 2015, according to the latest property report from Davy Research.
In their latest report Davy say rising leverage in the mortgage market has driven Irish house prices upwards, but banks have now almost fully utilised their allocation of loans that can exceed 3.5 of income so they expect house price inflation to slow gradually to 8% in 2018.
In its statement today the group Davy Research went on: "Today’s Residential Property Price Index (RPPI) shows a sharp 2% rise in September, following a 2.4% rise in July and 1.6% in August. Annual inflation is now running at 12.8%, its fastest pace since May 2015.
"The acceleration has been broadly based across Ireland. House price inflation is now 12.4% in Dublin, up from a trough of 3.2% in June 2016. Outside Dublin, house price inflation was 12.8%. The sharpest gains have been in cheaper rural areas. House price inflation was 16.5% in the west, 14% in the border region and 13.8% in the south west.
The group go on to suggest the mortgage market has been key driver of higher prices.
"Banking and Payments Federation data show that the average mortgage loan in Q2 2017 was €206,000, up 9% from €189,000 one year ago. Over the same period, the median incomes of first-time buyers rose by 2.6% to €65,000. This has meant that the median loan-to-income (LTI) ratio has increased to 3.1x from 2.9x at the beginning of 2016.
"However, recently released Central Bank data showed that 18% of loans now exceed the 3.5x regulatory threshold, close to the 20% allowed to do so under mortgage lending rules. In short, increasing leverage in Ireland’s mortgage market has driven house prices sharply upwards, but the Central Bank’s lending rules will soon become a constraint, limiting further increases in leverage.
Davy Research went on to say they are sticking with their forecast for 8% RPPI inflation in 2018
"Given the tightness of the Irish housing market, we had considered raising our forecast for Irish residential property price inflation to 10% in 2018. However, given that we now know banks have little room to expand the proportion of loans with a LTI ratio over 3.5x, we are sticking with our forecast for 8% growth in the RPPI next year.
"The impact of the Central Bank rules are more likely to be felt in Dublin where the median LTI is 3.4x versus 2.9x in the rest of Leinster. House price gains outside the capital will probably be stronger in 2018 given catch-up and the scope for banks to lend more highly leveraged loans."
Earlier: The cost of buying a home has increased by almost 13% nationally in the year to September, according to the latest data from the Central Statistics Office.
The CSO figures show the West saw the greatest price growth, with houses going up by 16.5%.
In Dublin, residential property prices were up by 12.2%, with house prices rising 12.4% and apartments increasing by 11.4% in the same period.
The rest of Ireland outside Dublin saw residential property prices go up by 13.2%, with house prices specifically climbing by 12.8%.
The cost of apartments outside of Dublin increased by an average of 15.5%.