HOUSE prices could decline by another 20pc from their current levels while variable rates are due to go up again, an international agency has warned.
And ongoing rises in mortgage arrears mean borrowers in this country are effectively on strike, credit ratings agency Fitch said.
But despite this, there is likely to be a moderate rise in lending to first-time buyers this year.
The agency, in a report on the global mortgage market, said property prices here could fall as much as 20pc, but it has assumed a 10pc decrease.
Since the bursting of the property bubble, prices have dropped by 50pc, to take the average value to €160,000.
Another 20pc fall would take the average price nationally to €128,000.
The agency, which rates the economic solidity of countries and companies, said there were signs that prices have stabilised, but a glut of unoccupied properties outside the cities and muted mortgage lending meant price rises were likely to be limited this year.
The number of people behind on their mortgage repayments is set to continue to rise. Most of the 86,146 mortgage accounts where no payments had been made for three months or more were actually six months in arrears, Fitch noted.
In a section of the report headed, 'Irish borrowers on strike', Fitch said that despite economic stabilisation, arrears continue to go up.
Lenders were unable to carry out large-scale repossessions because of a loophole in the law. This was encouraging some people to stop paying their mortgages, Fitch said.
"In addition, borrowers in arrearsare also likely to benefit from significant debt write-offs when personal insolvency legislation becomes effective," the ratings agency said.
Unemployment and high levels of negative equity meant that the arrears situation was set to get worse. But it said housing affordability was the one bright spot in the market here.
Mortgage rates would remain low, but it warned that banks had already pushed up their variable rates last year. Both Bank of Ireland and AIB imposed steep rate hikes on their variable rate customers last year.
The average variable rate across the market is now 4.3pc, but by the end of this year it is likely to have climbed to 4.7pc, the ratings agency said.
"Fitch anticipates depressed mortgage lending, continued declines in house prices and pressure on incomes and consumer confidence," it said.
The ratings agency said that access to mortgage lending will continue to hamper property markets in a number of countries, including Ireland.
A rise in mortgage lending in the first half of last year, and a greater proportion of mortgages being taken out by first-time buyers were seen as positive signs. But it said that despite this, mortgage lending continues to be subdued.
On Sunday, Permanent TSB said it had €350m available to lend for new mortgages this year. The money is coming from €12bn that customers have on deposit with Permanent TSB. It has received €4bn in taxpayer bailouts.
The €350m in new mortgages could mean an extra 2,000 house sales, based on the typical €166,000 home loan advanced last year.
And former building society EBS has committed to ramping up lending. Last year, the majority of mortgage loans were issued by AIB and Bank of Ireland, with KBC Bank and EBS issuing a small number of loans.
Fewer than 10,000 mortgage loans were issued in the first nine months of last year, according to the Irish Banking Federation.
Fitch said there were too few lenders active in this market, while those that are lending have major issues with arrears.
But despite that, the report noted: "The first-time buyer market offers some small hope. Fitch expects the current low transaction levels to moderately increase."
Report by Charlie Weston - Irish Independent