Warnings from the Central Bank about the property market are nothing new. The bank has been cautioning for some time about the run-up in personal credit levels and the potential dangers if this continues.
It is not predicting a drop in house prices, but is clearly concerned about the rate at which property prices - and the associated mortgage borrowing - have been rising.
The bank has undertaken a detailed analysis of the state of the market, as part of its analysis of the risks facing the financial system. This concludes that it is not possible to say for sure whether house prices are dangerously high, though it does point out that they are now above those in many other major economies. Looking at borrowing trends, the report points out that personal debt levels have doubled since the mid-1990s, but again it is not predicting an imminent rise in default levels.
The tenor of the bank's report indicates increasing concern in some areas, however. The report points out, for example, that the amount investors are taking in rent no longer appears to justify the kind of prices being paid for property. While finding that the financial sector is generally robust, it does warn that lenders would inevitably suffer if prices collapse. Most tellingly, the report clearly points to the burden facing many newer borrowers from rising interest rates. Many are borrowing on the basis that rates will remain around their current levels, it points out, but inevitably they will rise from their current lows, even if the timing and extent of such increases remain uncertain.
The international interest rate cycle is upwards. The Bank of England has steadily pushed up rates in recent months and yesterday evening the US Federal Reserve Board increased its key borrowing rate by 0.25 of a percentage point - the third such rise this year. It may still be some months before European rates start to move upwards, but rise they will at some stage. The Central Bank points out that mortgage rates, currently averaging between 3 and 3.5 per cent, could rise to 6 per cent at the top of the next interest rate cycle. It is a scenario which those taking out new loans would do well to consider.
It is still difficult to see what might unsettle the property market in the short term, with ECB rate increases likely to be modest over the next year and unemployment at a low level. However, sentiment towards the market could still change quickly. The ever-increasing pace of consumer borrowing is a concern, but until interest rates actually start to rise we may not see a sustained slowdown in credit growth, no matter what warnings come from the Central Bank.