House prices are forecast to rise by a more-than-expected 8 per cent this year, according to Dr Dan McLaughlin, chief economist at Bank of Ireland.

Speaking after an Irish mortgage conference in Dublin yesterday, Dr McLaughlin said the strong momentum in the housing market at the end of 2005 had led him to raise his growth forecasts from an initial 5 per cent.

However, while the year will start well, things will slow down as it progresses, with house price growth slowing to about 3 per cent in 2007, he said.

Meanwhile, mortgage lending will grow by as much as 24 per cent this year, according to Dr McLaughlin. While he is forecasting a slowdown in house-price inflation to coincide with a predicted rise in interest rates, he said there was little chance of a significant slowdown in mortgage lending.

With employment and pay rising by about 5 per cent each, household income is likely to increase by about 10 per cent, he said. For every 1 per cent increase in household income, mortgage lending rises by 2.2 per cent.

"For borrowing to slow significantly we need something to happen to those two variables," said Dr McLaughlin. "And it's hard to see either of them slowing."

The cycle of low interest rates that has helped boost the Irish housing market in recent years is set to end, according to Dr McLaughlin, who is forecasting that improvements in the US and German economies will force the European Central Bank to raise rates. He predicts they will be at 3 per cent by the end of this year.

However, there is no need for homeowners to panic. Rates will stay well below the high levels seen in the past and all of the speakers were in no doubt about the strength of the Irish economy.

"All the fundamentals are extremely positive," said Jim Power, chief executive at Friends First. "The demographics are good, there is strong inward migration and the job outlook is very positive."

The housing market is benefiting from the young population, which makes its demographic more favourable to higher debt levels than in other economies.

Shrugging off concerns expressed last year by the Central Bank that the Irish are taking on too much debt, Dr McLaughlin said it was rational that Irish people want to borrow money in the current environment.

Unlike in many other countries, about 80 per cent of Irish debt is secured. This is a safer situation than in places such as the UK where people borrow to fund living costs. Still, Mr Power urged Irish consumers not to become too dependent on the property market.

Speakers - including Finance Minister Brian Cowen - praised the increased competition in the Irish mortgage market, saying it offered a very good service to consumers. The Minister also said he was looking forward to the creation of a Europe-wide mortgage market. However Mary O'Dea, consumer director of the Financial Regulator, urged lenders to ensure they fully informed consumers about their products before signing up to them.