IIB Bank: House prices to fall 5%

Turmoil in world financial markets and nervousness about the Irish economic outlook mean Irish house prices could slip by a further 5% in coming months, according to a forecast by IIB Bank.

The mortgage lender also predicted that the European Central Bank (ECB) would be forced to cut rates by 0.5%, despite the Frankfurt-based bank statement last week that it was reluctant to make cuts.

“We look for ECB rates to be 0.5% lower by the end of the summer with some prospect of a further reduction later in the year,” is the forecast from IIB.

The bank said consumer confidence had declined dramatically and calculated that house prices fell by 11% last year.

John McAlinden, group head of marketing, predicts that the Irish housing market faces a tough start to the year on concerns of “very volatile” financial markets and increased worries about the Irish economic outlook.

IIB’s chief economist Austin Hughes said a fall in construction will cost up to 28,000 jobs, but the economy will remain strong.

However, while builders have been slashing the asking price for a new home to generate sales, first time buyers are still finding it difficult to get on the property ladder.

The Irish Mortgage Corporation said the number of first time buyers taking loans over a 40-year term had more than doubled in the last 12 months. The number of customers taking out these long-term loans has increased from 2.7% three years ago, to 18.2% in the last six months of 2007.

IMC estimated that total interest payable on a €300,000 mortgage over 40 years is €114,000 more that the amount payable on the same loan over 30 years.

Most buyers that opt for such a long-term mortgage do so to keep repayments down, before reviewing the situation and usually refinancing to a shorter term.

Published courtesy of The Evening Echo