Property prices may fall 45% from 2006 peak, warns Fitch

PROPERTY PRICES in Ireland could fall as much as 45 per cent from levels recorded in late 2006 as the economic downturn and the increased cost of funding the banks weigh on the market, according to ratings agency Fitch.

A new analysis by Fitch indicates that property owners could experience further financial pressures in the coming months. It found that the average house is currently worth 7.5 times the average income, a ratio expected to fall to close to 5.5 times the average individual income.

“Tax rises, high unemployment, wage deflation and property supply overhang continue to undermine the country’s property market,” said Alastair Bigley, head of Irish residential mortgage-backed securities (RMBS) at Fitch.

Property prices have fallen 24 per cent to date from a peak in December 2006, the agency said.

“Despite almost three years of house-price declines, prices have yet to reach a sustainable level of affordability,” said Douglas Renwick, associate director of Fitch’s sovereigns team.

The agency warned that the difficult market would be put under further pressure by a rise in the cost of funding to financial institutions, driven by the higher-than-expected cost of the EU’s guarantee of banks’ debt issuance compared to the current State guarantee and by a rise in interbank lending rates.

Unemployment rates are also forecast to rise, reaching 12.5 per cent by the end of this year and 15 per cent in 2011.

“Fitch expects all lenders to increase their mortgage rates and it seems certain that mortgage affordability will suffer against a backdrop of a generally higher tax burden, increasing unemployment and negative to zero wage inflation,” said Michael Greaney, associate director of Fitch’s RMBS group.

“Fitch therefore expects further house-price declines and late-stage mortgage arrears to rise.”

The agency said it planned to review its ratings of Irish RMBS transactions, with the performance of Irish subprime transactions of particular concern, in the face of mounting arrears and the inability of borrowers to refinance.