NCB stockbrokers has forecast a decline in housing prices over the next 18 months as the supply of new homes rises to match demand and lenders move to curb the increasing ratio of loans to house prices.

The report, published yesterday, does not put a figure on a possible drop in prices but one of its authors, NCB chief economist Mr Eunan King, predicted it would be between 5 and 10 per cent.

He stressed that the housing market here was not a "bubble" but said he was concerned that demand was now being driven by the lending market for the first time since prices began their meteoric rise in the mid- to late-1990s.

The report states that "around 15 per cent of new mortgage business has a loan to value ratio of more than 90 per cent. Since there will come a point at which lenders will not want this proportion to increase in prices, a curb will be placed on the pace of increases in prices.

"It would appear from this that lenders are becoming more aggressive and buyers more at risk from a setback to house prices."

Although the report stresses the levels of loan to value - or the percentage of the sale price borrowed - do not appear to be "perilous", it points out that ratios last year broke out of the average 60 to 65 per cent range which have predominated since the late 1980s.

In fact, in the fourth quarter of 2002, the loan to value ratio rose above 71 per cent.

This is a concern according to Mr King because it may lead to artificially inflated house prices and in turn decrease the real return for investors in the buy to let market.

The report states that "rents may already be too low to make residential investment an attractive proposition unless capital appreciation is expected".

It indicates that in the short-term this is unlikely to occur as "some builders have sold in advance more than a year's completions", creating a potentially "large overhang of supply".

The report states: "Prices may decline because supply moves higher and exceeds underlying demand.

"The home bond data for the first five months of 2003 are above the same period in 2002. If this were matched by completions for the year then more than 59,000 houses would be built, bringing supply to the top of the likely range of underlying demand in our view."

NCB discounts the possibility of a housing crash similar to the British experience in the late 1980s and early 1990s but its findings follow the bearish line on the housing market made by Goodbody stockbrokers back in March.