Irish Residential Housing and Mortgage Market to Show continued Resilience into 2005

- Irish House Price inflation to come in at 10% in 2004.

Bank of Ireland's Irish Property Review, the quarterly analysis of the Irish property market, published today, Tuesday 7 December 2004, reveals that the anticipated deceleration in Irish house price inflation has not materialised. In fact, a strengthening in house prices over the last number of months now means that 2004 is set to deliver another year of double-digit gains, with price inflation in the region of 10%. Although house price growth is expected to moderate in 2005 Dr. Dan McLaughlin, Bank of Ireland Chief Economist, is forecasting an increase of 6% next year.

According to the Department of the Environment, in the first six months of the year strong gains have been recorded across the country. In quarter two the price of second-hand houses rose by 8.8% in Dublin, with increases of 18.7% in Cork, 12.8% in Galway and a phenomenal 22% gain in Limerick.

Commenting on the findings of the Review, Dr. Dan McLaughlin said, "The absence of a slowdown is something of a puzzle given that at least 75,000 new houses will come on stream this year, and we feel that the demand for property has surprised to the upside. There are a number of factors combining to underpin this momentum.

"Firstly, the demographic impact has proven to be much stronger than we had anticipated with population growth of 1.6% in the year to April five times the EU norm. Net migration has accounted for half of this 65,000 increase in population. Secondly, employment is growing strongly with wage growth expected to exceed 5% this year. Finally, interest rates are still at fifty-year lows and the limp growth performance of the eurozone economy allied to the relative strength of the euro currency means that an upward rise in the next three or four months is unlikely. Consequently, affordability in this year and next is now less onerous than we had anticipated", further commented Dr. McLaughlin.

Ireland has acquired the borrowing habit after years of modesty in this regard - the Irish debt to income ratio has now risen to the European norm, after being well below peer group levels for decades. Gross lending in 2004 is expected to reach Euro17.5 billion, an increase of 29% on the previous year with over 98,000 new mortgages issued. Overall, mortgage lending in Ireland is growing at a much faster pace than in the euro area as a whole (27.5% against 9.7%).

According to the Review, the price of an average house in Ireland now exceeds Euro300,000. Affordability indices, that capture the average household's ability to service the flow of mortgage debt, by comparing the annual servicing cost of a new mortgage to average earnings in Ireland, reveal that there is currently no reason for concern over affordability in the Irish housing market.

Commenting on the current state of affordability, Mr. Joe Larkin, Director, Personal Lending Bank of Ireland, the leading provider of mortgages in Ireland said, "The average loan-to-value ratio is currently at around 55% and this is still very much in line with European averages. With the average new mortgage expected to reach Euro178,000 for 2004, there are no indications that individuals are borrowing excessive amounts. The Irish debt to income ratio has only now risen to the European norm, and many believe that given Ireland's singular demographics a higher debt to income ratio than the EU norm would be well supported in this country.

Finally, the return on Irish commercial property has shown a stable and positive quarterly pattern since the Spring of 2003 with returns of between 2% - 4%. This sector looks set to record full year returns of around 10%, suggesting that it will lag behind the residential sector and Irish equities. The positive performance of the commercial market still masks a divergence in returns between sectors, with retail still significantly outperforming, leaving the industrial and office sectors in its wake.

The Bank of Ireland's Irish Property Review is published by Bank of Ireland Mortgages and the Economic Research Unit of Bank of Ireland Group.

ENDS

For information contact:

Olive Moran
Marketing Manager
Bank of Ireland Mortgages
Tel:01 6113525 /086 6622333

Anne Mathews
Media Relations Manager
Bank of Ireland Group
Tel:01 6043836 /087 246 0358