Standard & Poor’s expects Irish home price growth to top the European charts this year, driven by supply shortages and Brexit-related demand.
The leading international ratings agency expects Irish residential property prices to rise 8.5 per cent in 2017, followed by Germany and the Netherlands, which are both expected to post 7 per cent growth.
On the other end of the scale, S&P expects UK prices to edge just 2.5 per cent higher before slowing to 1 per cent in 2018 amid uncertainty over the outcome of the UK’s talks on exiting the EU.
“Housing market activity is set to expand in all major European markets this year, fuelled by historically low rates and gradually accelerating economic growth,” S&P economists said in a report published on Tuesday.
“We expect Ireland’s housing market to experience the strongest year-on-year nominal house prices rises of 8.5 per cent this year and 7 per cent in 2018, underpinned by supply shortages and continued economic recovery.
Relocation
“The Brexit-related relocation to Ireland of some of London’s financial sector workers should also support the market.”
Irish residential property price inflation was running at 11.9 per cent in May, accelerating from 10 per cent in April, and 5.4 per cent in the 12 months to May 2016.
Some commentators have attributed part of the increase to the Central Bank easing mortgage restrictions for first-time buyers in January, and the Government's Help-to-Buy scheme for first-time buyers of new homes, introduced at the same time.
Overall, the national home price index was still 29.5 per cent below its 2007 peak in April. Dublin residential property prices remain 29.5 per cent lower than their highest point, set in February 2007, while residential property prices in the rest of Ireland are 34.7 per cent lower than their May 2007 peak.
Mortgage lending
Bank of Ireland executives forecast last week that industry-wide mortgage lending is expected to rise to €7.5 billion this year from almost €6 billion in 2016, as the market continues to recover.
Lending peaked at about €40 billion in 2006, just before prices in the property market hit their highest point.
Meanwhile, S&P said that the German residential property market “continues to boom on tight supply and a strong economy”.
The rating agency expects inflation to run at 6 per cent in Portugal and 4 per cent in Spain in 2017 as foreign buyers snap up property in both markets that were beaten down during the financial crisis.
“Italy is experiencing the slowest price rise among major European markets, at a forecast 0.5 per cent this year, after a prolonged period of decline, due to weak economic recovery,” S&P said.
