House prices will fall by up to 2.5 per cent this year, but the sharp rise in borrowing costs over the past 18 months is coming to an end, IIB Bank has predicted.
In a report presented today, IIB said: "While one final ECB rate rise cannot entirely be ruled out, it is becoming at least as likely that the next rate move will be a cut."
The report said that 10 per cent of borrowers would see a substantial deterioration in their financial situation if interest rates rose by a half per cent more.
But equally one in three could withstand up to another 2 percentage point rise in borrowing costs.
Most borrowers have braced themselves for more pain on the interest rate point. with three out of four expecting rates to rise by more than 1 per cent, it said.
IIB Bank warned the Government needs to be careful to avoid "an unnecessarily hard landing for the housing market".
It advocated an increase in mortgage interest rate relief to a 25 per cent rate rather than the standard 20 per cent rate. It also suggested broadening the relief beyond first-time buyers.
Chief executive of IIB Homeloans Tom Foley said although some cooling in the residential property market had been inevitable, nervousness meant the slowdown was sharper than warranted.
Mr Foley said: "The Irish housing market has now reached a critical point. While higher borrowing costs have been the key driver of the slowdown, a sharp loss in confidence is now the most threatening aspect of the outlook.
"With some sensible policies, and some easing in pessimism, the Irish housing market should soon begin to reflect what is still a healthy economy," he said.