Professor Philip Lane:

To address a broader issue first, we should all be much less concerned about trying to forecast and much more concerned with trying to manage risks. As I stated, the market is expecting single-digit increases in house prices. What we have to think about is what if the market is wrong and what if there is a reversal. I believe a reversal in house prices is a material risk for several reasons.

Number one is time. I agree that these may be over a two or three year horizon rather than a 2018 risk. I am not saying this is for 2018. Over a two or three year horizon, more and more houses are being built. In the mid-2000s there was a very big house-building response in Ireland and the overhang of so much supply was part of the reason houses prices eventually tumbled so much. Straightforwardly, more housing of different types becoming available will relieve the pressure on the rental market. This is not just family homes. Student accommodation is being built all around Dublin and this will take some students out of the normal rental market, and so on. This will relieve pressure on the rental market.

With regard to interest rates I do not believe that multi-policy rates will move dramatically in the years to come. The market does not think these will move dramatically but the rates relevant for mortgage funding are more like the five to eight year rates that banks can raise money at. There is a risk that these can move. More basically, we have seen a strong increase in incomes in Ireland from more employment in recent years. The Irish employment story has been very strong and as we get towards lower levels of unemployment it will slow down. Add into the natural slowdown the trade risk, the Brexit risk and the end of the cycles in the US and so on, and there are multiple reasons this kind of current positive momentum may go into reverse. I am not expecting it but it is a material risk and should be planned for.