In a report, which coincided with confirmation by Bank of Ireland that it will hike mortgage interest rates by 0.5% next month, Fitch warned that arrears will become a growing problem.
The decision by Bank of Ireland, the country’s largest lender, will add an extra €60 a month to repayments on a €200,000 home loan.
In its review of the Irish housing market, Fitch said it expected house prices to continue falling.
The agency predicted that, in a best-case scenario, houses prices would fall by 50% from their high point in 2007, but warned that, in a worst-case scenario, prices could fall by 67%.
Fitch’s senior director, Ketan Thaker, said that, due to the oversupply of properties and continued restricted credit availability, they foresaw more “downside risks” for Irish house prices.
In response, property agency Savills said it broadly agreed with the report
“The pace of price falls totally depends on locations, however,” said Joan Henry, head of research at Savills Ireland.
Meanwhile, Bank of Ireland’s standard variable rates will increase by 0.5% on September 22.
The new rates will be 3.99% for Bank of Ireland and 4.14% for ICS Building Society customers.
These changes follow two European Central Bank rate hikes in April and July.
The bank will also increase interest rates on credit cards by 0.5%. Changes to interest rates applied to personal and business overdrafts, personal current accounts and business loans will also come into effect from the end of August, the bank said.
The bank said it has “no option” but to increase rates.
Chief executive of the Irish Brokers Association, Ciaran Phelan said these actions “fly in the face” of the stance the ECB took last week when they said there will be no rate rises for the rest of the year.
“BoI mortgage holders who breathed a sigh of relief last week will no doubt be shook by BoI’s announcement,” he said.