Debt rating agency expects Irish house prices to fall by 2-4% over the next two years

DUBLIN: As economic growth depends on the effects of the COVID-19 pandemic and Brexit, a debt rating agency warns that Irish housing prices will fall by 2-4 per cent over the next two years.

According to Fitch Ratings, the World Trade Organization will raise the tariffs on goods between the EK and the EU as a result of a no-deal Brexit. This comes at a time when the chances for an agreement hang in the balance, until the transition arrangements expire at the end of this month.

Fitch predicts that Irish mortgage arrears, which stood at 5.6 per cent at the end of June, will rise to 14-16 per cent next year, before falling “slightly” next year.

“We expect to see a pattern observed after the financial crisis, as servicers will apply extensive forbearance measures leading to a build-up in late-stage arrears and little or no repossession,” Fitch said.

“While the low interest rate environment will help the performance of seasoned loans, many first-time buyers from recent years borrowed at their serviceability limit and may be more vulnerable to changes in the labour market. The resolution of the Brexit negotiations and the length of the Government [economic] support measures leave a high level of uncertainty around the severity of the impact of the pandemic on the Irish labour market and mortgage loans’ performance,” Fitch added.

The agency said it expects the Irish gross domestic product (GDP) to expand by 0.7% this year and growing by 3% in each of the next two years. However, it says unemployment will remain high and this will adversely affect affordability and housing demand.

According to the Central Statistics Office (CSO) figures, the unemployment rate in the Republic of Ireland was 21% last month, after the Government imposed temporary Level 5 restrictions to curb the spread of COVID-19.

“We believe government support will play a key role in the medium term, supporting the economic recovery and cushioning the effects of the pandemic on home prices,” Fitch said.

Fitch expects house prices to be broadly stable across nine of the 16 countries. It also forecasts that Spain and the UK will face the greatest downside risk, with prices dropping between 4% and 6% next year.