Irish economy 'most at risk' from global credit crisis
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Homebuyers will find it harder to get mortgages and house prices will fall further as the global credit crisis continues.
Ireland was singled out yesterday by a top international think-tank as one of the most vulnerable economies in Europe to the ongoing international banking crisis.
The scale of the property price boom now puts the country at greater risk from the fallout in the financial markets, according to the International Monetary Fund (IMF).
If the crisis worsens, banks will stop giving 100pc mortgages, opting instead for less risky loans, and businesses will find it harder to borrow money.
These events would have the obvious knock-on consequences of driving down property prices and damaging government revenues.
The IMF warning will place more pressure on Finance Minister Brian Cowen to keep spending tight in the forthcoming budget to give him some room if the crisis escalates.
Stabilise
Fine Gael's Richard Bruton said it was time for Mr Cowen to reform stamp duty to give confidence to consumers and help stabilise the property market.
And consumers are already being hit by higher mortgage rates because of the credit crunch, it has emerged.
This is because banks and building societies are passing on some of the increases in their funding costs to mortgages holders.
The average standard rate mortgage has gone up by 0.1pc as the credit crunch squeezes wholesale lending for banks.
An analysis of Central Bank data, carried out by Goodbody Stockbrokers, found that banks are tightening the rates at which they lend to customers.
Goodbody's Anna Lalor found that on existing mortgages the average rate charged rose by 0.1pc.
But the IMF report suggests the situation will get worse if the credit crunch develops.
Ireland is bracketed with Britain, Belgium, France, the Netherlands and Spain as countries vulnerable to a prolonged tightness in bank lending because of the financial turmoil which began in the US subprime mortgage market.
"Corporate borrowing for investment and construction activity would be affected the most," the IMF says in its latest Regional Economic Outlook report.
"Countries which have experienced rapid house price rises would be the most exposed," the IMF says.
Even if the credit crisis is overcome, the European Central Bank may have to resume raising interest rates to ward off inflation.
The IMF said the ECB was right to keep rates on hold once the crisis broke.
But if the risks fade, as the IMF assumes, "further tightening may then be required".
"Such a stance would of course need to be re-considered if the risks materialise and the slowdown becomes protracted," the report says.
Fine Gael deputy leader Richard Bruton said Mr Cowen's budget must give the public confidence in the way the economy is run, rather than the minister coming with a "spectacular".
Budget
"What people will be looking for is a solid, well-planned Budget that is strong on the infrastructural side and takes up the slack on the housing side," he said.
And the party's finance spokesman said a reform of stamp duty would be a practical measure to help stabilise the market.
"I've always believed it is the time to reform stamp duty. Now is a good time as the property market is in need of a boost of confidence. It is an instrument that would help to stabilise the property market," he said.
Meanwhile, an Irish investment institution has become the latest company to suffer a serious setback as a result of the international credit crisis.
International Securities Trading Corp (ISTC) postponed its results, suspended trading in its shares and cancelled raising money by issuing a bond.
The company has also taken a once-off charge of €70m to its accounts after the value of its assets were downgraded.
The financial house is a small specialist operation which lends money to other financial institutions.
It was founded in 2005 by managing director Tiarnan O'Mahoney, a former chief operating officer at Anglo Irish Bank.
- Brendan Keenan, Charlie Weston and Fionnan Sheahan
