House prices are likely to rise faster than previously expected this year, according to the State's largest mortgage lender. Dominic Coyle reports.

Permanent TSB has revised upwards its forecasts for the Irish housing market following data that showed the annual rate of growth in house prices rising for the first time in four months.

Prices nationally rose by 14.1 per cent on average, up from an annual rate of 12.7 per cent in April. The monthly rise was 1.7 per cent, up from the 1.3 per cent recorded in April and March's 1 per cent figure.

Permanent TSB's marketing manager, Mr Niall O'Grady, said the housing market remained surprisingly strong.

"So far this year we have not seen the kind of moderation in terms of price growth which we had expected to see," he said. "It's likely that we will now be looking at full-year growth somewhere around the early teens - as against forecasts of high single- digit growth made just a few months ago," he said.

House prices in the first five months of 2003 have risen by 5.8 per cent, ahead of the 5.1 per cent recorded in same period in 2002.

Mr O'Grady said Permanent TSB now predicted that prices would rise by up to 13 per cent this year, just a couple of points off the rate of growth in 2002. He attributed the higher-than- expected demand to falling interest rates.

The average price paid for a house in the State in May was €217,803, up from €190,879 a year earlier, according to the monthly survey, which is compiled in association with the Economics and Social Research Institute (ESRI).

The Dublin market proved stronger than elsewhere with prices rising 1.9 per cent during the month compared with a 1.7 per cent rise nationally. On an annual basis, Dublin prices are 15.8 per cent stronger, with the figure outside Dublin up 11.9 per cent.

However, first-time buyers are still feeling the pinch. Prices for people starting out rose by 2.3 per cent in the month, while those trading up faced an increase of just 1.5 per cent. A sharp increase in prices paid by first-time buyers relative to those who are moving home has seen them catch up on earlier increases faced by second-time purchasers.

The average price paid by a first-time buyer in May was €192,340, compared to €243,922 for second-time buyers.

The price of second-hand homes continues to grow faster than that of newly built accommodation. The latter has accelerated 10.5 per cent in the past year, well short of the 16.1 per cent increase in second-hand homes.

The average new house costs €211,140 in May, while second-hand property costs €223,464.