Mortgage arrears among owner occupiers in Ireland could peak at 16.5 per cent according to a new report by Davy Stockbrokers.

Owner occupier arrears were at 13.4 per cent in the first quarter of this year.

The report also raises concern about arrears on buy-to-let mortgages, which Davy see running at more than twice the rate of the owner-occupier category.

However, a slowly stabilising labour market should reduce the pace of mortgage arrears according to Davy.

In analysis of the mortgage arrears situation, the stockbroker said banks need to move beyond short term measures.

“Restructured mortgages have had limited success in restoring loan performance, with interest only and principal payment modifications prevalent. A remarkable feature of the Irish housing market principal write-downs and repossessions,” the company said.

Irish banking mortgage losses will exceed the €9 billion assumed in the worst case scenario used in last year's stress test, according to the Dublin-based securities firm.

"Eventual losses of €10 billion to €11.5 billion could be absorbed within the remaining 8.5 billion of unused capital from deleveraging requirements," Davy said in a note.

"Tactical delinquency, increased bankruptcy, further property price falls and macroeconomic developments pose risks to this view."

Legal rights group FLAC said the Davy report was a "stark indicator" of the need to ensure lenders are more realistic and reasonable in their proposals around mortgage debt for Irish consumers.

" In FLAC’s experience, this focus on short-term interim measures to deal with mortgage debt has indeed worsened the position of Irish consumers. Such measures often only prolong the life of loans that are truly unsustainable".

Additional reporting: Bloomberg