There have been pick-ups in activity in both residential and commercial property markets. The pace of house price and residential rent rises has increased in 2014, particularly in Dublin, and they are now increasing at values close to mid2000s peak rates (Chart A2). Low levels of housing supply are an important factor in the house price rises. Supply constraints alongside increased demand are also a feature of the commercial property market.
These developments raise a number of concerns from a financial stability perspective. The first is the rapid pace of house price increases over the past year or so. This could give rise to expectations of further increases and could lead to a misalignment of house prices. Secondly, rising house prices may prompt an increased demand for mortgage loans. It is important that appropriate credit standards apply to new loans. The Central Bank has recently proposed limits on the amount of new mortgage lending that can take place at higher loan-to-value and loan-to-income ratios. Their purpose is to ensure prudent lending standards are maintained throughout the credit cycle. Thirdly, activity in the commercial property market appears to reflect, to some extent, the search for yield by international investors. This leaves the market vulnerable to a change in investor sentiment and the availability of investment opportunities elsewhere.