Peter Bacon, an adviser to NAMA and author of various housing reports, said this was the “only way” to encourage people who want to buy properties, but who fear prices will fall even further, back into the market.
Mr Bacon, said the Government had failed to take the necessary action to reduce the supply of housing, including the demolition of ghost estates.
He said he could see no price floor below which properties would not fall, unless the Government intervened, including by addressing the “fundamental problem” of a lack of credit by banks.
The economic consultant said that if the Government wanted to stabilise the property market it had to cover any risk that purchasers of new properties faced.
“If people fear the market is going to fall further then that fear has to be removed and the only way it can be removed is by government assuming that risk,” he said.
“If somebody were to buy a house now at €175,000 and by the end of this year there was a risk that the price was going to fall further, then the only way you will encourage punters back into the market is by the Government assuming that difference.”
NAMA, the state toxic bank, announced last September it would insure buyers of properties it controlled against the danger of negative equity. Under its scheme, NAMA would waive up to 20% of the purchase price if the market value of the property fell over the following five years.
Speaking on RTÉ’s Morning Ireland, Mr Bacon said the basic problem was the fact banks were not giving out mortgages.
He said he did not think there was any “natural levelling off” in house prices.
“So long as buyers stay on the sideline and financiers choose not to finance purchases then the market will remain in a state of instability,” he said.
Rachel Doyle, director of mortgage services at the Professional Insurance Brokers Association, said Mr Bacon’s proposal was “interesting”, but required more study, not least the cost it would impose on the state.
She said the lending problem needed to be tackled “before everything else”.
Ms Doyle said 60%-80% of her association’s clients who had submitted a mortgage application had been turned down.
“Lending is a huge issue. Until you fix that the market is not going to stabilise in any shape,” she said.
Meanwhile, Darragh O’Brien, Fianna Fáil’s Seanad spokesman on finance, urged the Government to set a date for implementing its action plan to help struggling mortgage holders.
He said there had so far been no sense of urgency from the Government to address the crisis.