A new report finds the credit quality of Irish mortgages "exemplary" and has dismissed concerns about a steep decline in house prices here, saying a slowdown in the rate of price increases is more likely.

The report, compiled by Merrill Lynch for investors putting funds into mortgage-backed securities issued by Irish lenders, is very positive towards the Irish mortgage market. It finds loan losses are very low, while mortgages for more than 70-80 per cent of the value of the property are underwritten by mortgage indemnity agreements.

Merrill Lynch believes there is little scope for a sharp reversal in house prices in the Republic for the foreseeable future. "We would expect a moderation in house price growth in the near term as the effects of structural changes wear thin and as economic growth decelerates somewhat," according to the report.

Investors should take comfort from the exemplary credit quality of Irish mortgages, in terms of historical arrears and defaults and the untainted claims paying record of the institutions underwriting mortgage indemnity guarantees, it states.

As the report was published, Ulster Bank yesterday cut its variable mortgage interest rate by 0.25 of a percentage point to 5.88 ahead of an expected cut in European interest rates.

The bank has also reduced its discounted variable interest rate for new borrowers to 4.7 per cent until January 1st next. The bank said the rate cut was being introduced to enhance competitiveness and customer focus.