The Irish mortgage market could tilt dangerously towards overheating within the next year and a half if current lending growth is maintained into 2005, according to economists at the Economic and Social Research Institute (ESRI).
The Government-funded institute has roughly estimated that the average mortgage-holder in the Republic dedicates about 8 per cent of their disposable income to repaying their mortgage every month at the moment. The estimate is based on an average outstanding mortgage term of about 10 years, although no official figures on average mortgage terms exist.
ESRI economist, Mr Danny McCoy, believes however that this "affordability" ratio could rise above 10 per cent if mortgage lending continues to grow at levels seen over the past year.
This expansion in lending - the collective total borrowed by mortgage-holders is rising by about €1 billion each month - has been maintained into 2004.
He warned yesterday that if a similar expansion in lending is seen in 2005, when interest rates are expected to have risen, it could reach a "worrying" zone. This would see the affordability ratio rise to 14 per cent or above - the level at which the UK residential property market collapsed in the 1990s. "Something is going to have to give," said Mr McCoy yesterday.
