House price rises moderated significantly in 1999 showing a 17.9 per cent year-on-year increase in the Republic compared to a rise of almost 30 per cent in 1998, the latest house price index shows.

The Irish Permanent Index, compiled in conjunction with the Economic & Social Research Institute, shows substantial regional variations. Price rises in Dublin more than halved during 1999, reaching 16.5 per cent, compared to 36.2 per cent in 1998. However, areas outside Dublin experienced a more moderate reduction, with prices increasing by 18.3 per cent last year compared to 26.4 per cent the previous year.

Sources in the Department of Environment said the figures were very much in line with its own predictions.

Irish Permanent chief executive, Mr Billy Kane, said the findings probably reflected an element of catch-up by the rest of the State on Dublin's strong rises in the past few years. The growing popularity of satellite towns in the commuter zone outside the capital was also a factor.

Figures for December 1999 show the trend in prices across the State is downwards. Prices rose by 1.5 per cent in the month, a reduction of 0.2 per cent on the November figure. The contrast between the out-turn for 1999 and 1998 suggests a welcome element of moderation coming into the market, according to Mr Kane.

In December 1999 the average price paid for a house by a first time buyer was £97,975; this compares with an average price of £82,232 in December 1998. House prices have almost doubled since 1996.

The increasing supply of new houses on the market during 1999 was probably the reason for the moderation in price rises, Mr Kane said. However, he warned the growing labour shortage in the construction industry could spur higher price increases, if it interrupted the flow of new houses coming on the market.

He said resources required for the National Development Plan for infrastructure projects and housing development were coming from the same pool of workers and would require some 5,000 to 10,000 extra workers to complete.

The number of new houses coming on stream has risen dramatically over the past few years from 38,000 in 1997 to 47,000 in 1999 and it is expected to rise to 52,000 this year.

Demand for new houses remains strong and probably reflects the fact that new homes come complete and there are less costs associated with renovating the property, according to Mr Kane. There is now little difference in the growth in new and second hand house prices, he said. The rate of increase in the second time buyer market during 1999 moderated considerably to 17.2 per cent in 1999 from 33.5 per cent in 1998. The first time buyer market remained fairly steady, with the rate of increase falling to 19.1 per cent last year compared to 25.9 per cent in 1998.

However, despite the moderation in price increases this year, the level of such increases still poses real difficulties especially to young home buyers, said Mr Kane.

Figures for Cork, recently included in the Irish Permanent Index, show price increases of 21.9 per cent in 1999, down 5.6 per cent on 1998. Since 1996 house prices in Cork, city and county, have risen by 85.6 per cent. This compares to national house price growth of 90.9 per cent, and price growth outside of Dublin of 75.5 per cent over the same period.

The average mortgage paid by Irish Permanent customers for first time buyers in Dublin was £89,000 in 1999, an increase of £17,000 on 1998. The increase was less for second time buyers reaching £68,000 in 1999, up £5,000 on 1998.

The vast majority of borrowers, 77 per cent, were in the 25-44 age group reflecting the fact that people are forming households at much earlier ages than previously, said Mr Kane.

Asked if Irish Permanent was sticking to Central Bank borrowing guidelines, Mr Kane said all lenders were currently re-evaluating their lending strategies because people's affordability was rising. In terms of the number of mortgage payment arrears and repossessed houses by Irish Permanent, things "were never healthier".