A GLOBAL RATINGS AGENCY has warned that house prices in Ireland could still fall by another 20 per cent from their current levels, with a large oversupply of housing killing off any major demand.
Fitch says it is assuming a further decline of between 15 and 20 per cent in house prices in Ireland and Spain, and argues that Ireland’s surplus of housing from the peak years – combined with a growing problem of household arrears – could keep prices down.
In Ireland’s case, Fitch says, this is despite a stabilisation of government finances – and driven by legal complications which make it more difficult to repossess a home.
“Despite economic stabilisation, Irish arrears continue to trend upwards. Fitch believes this to be partially driven by policy framework changes,” the report said.
The report comes in spite of reports from property websites Daft and MyHome, both of which believe that while residential property outside Dublin continues to fall, prices appear to have stabilised within the capital.
In particular, the report criticised recent court rulings – particularly that of High Court Justice Elizabeth Dunne, who ruled that people who entered into mortgages before December 2009 but who only entered arrears after then, could not be repossessed.
“Lenders are constrained from large-scale repossessions,” the report said, which could have the effect of “dis-incentivising borrowers from paying their mortgages”.
The report said that in both Ireland and Greece, which has similarly tight restrictions on repossession, “it is effectively impossible for banks to foreclose for considerable parts of their portfolios”.
“In addition, borrowers in arrears are also likely to benefit from significant debt write-offs when personal insolvency legislation becomes effective,” it added.
Recent Troika reports revealed a government agreement to address the difficulty caused by Justice Dunne’s ruling, though justice minister Alan Shatter has insisted that the deal would not increase the overall volume of repossessions.
The report does have some positive news for Irish property, however, noting that the mortgage interest rates had fallen overall and made mortgages relatively affordable – which could begin to stimulate some extra demand for housing.
Read: The Fitch report on residential mortgages worldwide (PDF)