Dr. Kieran McQuinn:

On the interest rates, as I said to Deputy Doherty, the most recent data show the higher rates feeding into higher housing costs, which, in turn, is feeding into higher inflation. This is rather ironic because interest rates usually are put up to calm inflation. That is an anomaly at present. Any increase in interest rates that is absorbed has an effect. I would say it has already had an impact on housing demand because the impact is felt straight away. It affects householders and it affects prospective buyers going into a bank looking for a mortgage. The interest rate going up almost automatically means the amount of money they will be lent is less than what they would have got if they had gone in six months ago with the same income level but when the rate was lower. Rising rates have an almost instantaneous effect on housing demand. As we said earlier, we may see a scenario over the next period, if interest rates continue to increase, whereby that could result in house price growth beginning to moderate and possibly prices levelling off or even falling at some stage. That is the way interest rates operate, particularly in the housing market.

Regarding lending conditions, the Deputy has made a crucial point that people are recognising, which is that the changes that have occurred in the financial system over the past ten years since the financial crash, that is, the changes in regulatory conditions, mainly at a euro area level but also the macroprudential changes we have introduced in this country, have basically meant that our banks have become very conservative and prudent in their lending practices. In general, that is a good thing, although it does lead to people being frustrated when applications for credit are refused. It means we have an issue with people not being able to access the levels of credit that are required to get into the housing market. It also causes problems on the supply side when developers and so on cannot access credit in order to build. There is a growing recognition that the State will have to play a greater role in this, certainly in providing finance for housing development and possibly even by providing more finance on the mortgage side for people looking to get onto the ladder. That is almost a follow-on implication of the tighter regulation we have seen in the financial sector over the past ten years.

The upside to this, going back to one of the previous questions, is that it means our financial sector probably is in a much more prudent place now than it has been for quite some time. Even with all the tremors we are seeing in the international financial sector, whether in regard to Credit Suisse or the recent issues in the US, the Irish banks are in a better place to deal with those kinds of problems. Clearly, they were not in that space 15 or 16 years ago when the crash happened and the credit bubble collapsed.