A sharp rise in mortgage borrowing is expected to cause the Central Bank to defer further cuts in interest rates until well into next year. And the Consumers' Association, while warning that the property market is in danger of overheating, says it is concerned that people are borrowing too much in relation to their incomes.
The latest Central Bank figures show that mortgage borrowing in September was running 15.4 per cent ahead of last year. The total level of borrowing is now running 21.7 per cent ahead of 1996, confirming that economic growth remains extremely strong.
In the 13-month run-up to European Monetary Union, further cuts in interest rates are inevitable, fuelling further inflation in the housing market.
The figures were published as the Consumers' Association war ned that Ireland is facing a property market "bubble" and that consumers should consider alternatives to buying property.
It said in a statement that there was now "an unacceptably high risk" of a property bubble - where prices are artificially inflated - and prospective buyers should examine the asking price of property and compare it to the cost of their total debt repayments.
First-time buyers should consider renting rather than buying, the association says, while those who already own property should look at the potential for house extensions, rather than trading up.
The association warned that the size of mortgages in relation to the earnings of borrowers is a cause for concern.
The latest Central Bank figures show that in September the financial institutions lent more than £250 million to mortgage borrowers, a strong monthly increase of 2.1 per cent, bringing the total outstanding to over £12.5 billion. Lending in other areas is also growing strongly.
Mr John Beggs, chief economist at AIB, echoed the association's concern. He warned that house prices will reach a point where many people will be unable to afford to buy a home.
He added that the expectation of lower interest rates is now so strong that people will continue to take advantage of easily-available credit.
Despite rising interest rates elsewhere in Europe, the Central Bank is not able to increase rates here. In fact, interest rates will have to fall over the next year in the run-up to monetary union.
According to Riada Stockbrokers, the boom in borrowing means that the Central Bank will try to put off reductions in interest rates until the spring of 1998 and "ideally" much later in 1998.
However, it is not clear how long the Central Bank will be able to hold out against downward pressure on rates next year. The prospect that that could add further fuel to the property market and feed through to higher overall inflation will concern the bank and the Department of Finance.
The figures also suggest that the growth in the economy may still be accelerating. According to Mr Beggs, the economy is clearly growing at nine or 10 per cent.