House prices to slide 12% this year as transactions dry up in Covid-19 hit market

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House prices will fall 12% this year amid the Covid-19 crisis before staging some sort of recovery in 2021, the chief executive of KBC Bank Ireland Peter Roebben has said.

KBC Bank is the first major mortgage lender in Ireland to acknowledge that the sudden crash that left almost 1.3 million people unemployed or laid off and needing an emergency payment is having across the economy.

KBC Bank’s drop of 12% in prices would be worse than in 2008 when prices fell almost 7%, according to CSO figures. In 2009, prices tumbled by 19% and continued to fall sharply in each of the following three years.

The bank provided two alternative outcomes to its central projection of a 12% fall in house prices this year and an 8% rise in prices in 2021 -- one which is more pessimistic and the other which is more upbeat.

Under the pessimistic outcome, Irish house prices slide 20% this year and fall again by 5% in 2021.

Its optimistic scenario sees house prices falling by 6% this year, rising by 5% in 2021, and by 4% in 2022.

Mr Roebben told the Irish Examiner said that with transactions drying up that house prices will inevitably fall.

He said that mortgage interest rates would unlikely fall, however, because lenders are facing tough pressures on income and will have to take account of loan impairment costs too.

“In any case the market is going to be subdued this year and the number of transactions will be lower than planned,” he said.

We believe that the extreme peak we see now will settle.

Before the onset of the Covid-19 crisis, KBC Ireland posted a net profit of €12m. “We were having a grand first quarter and were on track,” he said.

“It will be the first significant moment” he said, referring to the end of the first three-month payment break. The bank has applied 6,900 payment breaks so far, though some customers have resumed paying.

The economic crisis also overshadowed a major launch this week of its long-promised pensions and assurance products in Ireland. The decision to go ahead showed “a real” commitment of the Belgian-based group to the Irish market, he said.

In its update also published yesterday, rival mortgage bank Permanent TSB, which is 75%-owned by the Government, didn’t provide projections for house prices, although it said that new lending this year could be as much as half the €1.7bn it advanced in 2019.

Permanent TSB has provided around 10,000 payment breaks and announced a €50m impairment charge for the first half of the year