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Financial Stability

Potential for 'significant' house price growth as pandemic fails to dampen demand, says Central Bank

House prices rose by 4.5% between April 2020 and April 2021, according to the CSO.

IRISH HOUSE PRICES have risen at their highest annual rate since March 2019 and there is potential for “significant” further increases in the medium-term, the Central Bank has warned.

House prices rose by 3.7% between March 2020 and March 2021, according to the Central Bank’s latest Financial Stability Review (FSR), published this morning.

The biannual report, the first of 2021, sets out the Central Bank’s assessment of the major risks to the Irish economy and financial system and its efforts to tackle them.

Although the overall outlook for the Irish economy is rosier compared to the last FSR, published in November 2020, because of the roll-out of Covid-19 vaccines, the Central Bank said the recovery is subject to potential “unexpected setbacks”.

“The recovery is likely to be uneven, with implications for the financial position of some borrowers,” the Review suggests.

The publication of the report comes as new Central Statistics Office figures, released this morning, reveal that house prices grew by 4.5% in the 12 months to April 2021.

This compares to an annual increase of 3.5% in the 12 months to April 2020.

Despite the shock to incomes caused by the pandemic, the Central Bank said there is “little evidence” of a fall in demand for housing.

In fact, the FSR states that high levels of demand coupled with persistently low supply levels — exacerbated by the closure of construction sites during the pandemic — continue to place upward pressure on house prices.

In this context, the report highlights “the potential for a widening of the mismatch between housing demand and supply to fuel significant house price growth in the near to medium-term”.

According to the Central Bank, “With existing supply constraints, a high degree of pent up demand and a recovery in the flow of mortgage credit, the conditions for significant upward momentum to house prices in the months ahead appear to exist.”

Today’s FSR comes amid a major Central Bank review of its mortgage lending rules framework, its first “deep dive” into the measures since they were introduced in 2015.

Speaking to reporters, Central Bank governor Gabriel Makhlouf said the framework will allow the regulator “to consider the overarching approach to our toolkit and strategy to ensure they continue to remain fit for purpose”.

Announcing a new “digital tool”, which will allow members of the public to give their input on the lending rules, Makhlouf said the Central Bank will also hold “listening events” in July.

“We will publish our own assessment of what we have learned from both the listening events and the digital tool throughout the second half of this year,” he added.

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