The inclusion of buy-to-let loans, higher loan-to-value re-performing loans and fixed-rate mortgages is set to push the quality of residential mortgage bonds lower, according to Moody's.
The credit rating agency said in a report yesterday that the economy overall would continue to grow strongly at 3.2pc this year. It predicted a pick-up in house price inflation, which it said would rise to 4.5pc this year, from 3.9pc in 2019.
"In Dublin, house price increases will be stifled by the Central Bank's macro-prudential regulation measures, most notably the loan-to-income limits for new mortgage lending," the agency said.
While the credit outlook for banks here will remain stable, margins will come under pressure, Moody's said.
"Profitability will decline, primarily because of high reliance on net interest income, high exposure to low-margin mortgages and losses from problem loan sales," it noted.
"The buy-to-let sector is expanding, specifically for properties in Dublin and its surroundings. This collateral is riskier and with higher loan-to-value levels than other real estate debt," the agency said.
"The inclusion of fixed-rate mortgages at lower rates has permitted borrowers with weaker loan-to-income ratios to obtain a mortgage."
The share of mortgages with fixed rates in the third quarter of 2019 increased to 74pc of all new contracts, approaching the eurozone average of 83pc.
Increasing wages and rents, together with falling mortgage rates, will support house prices, Moody's said.
It warned, however, that a slowdown in economic growth would hit the pace of reduction in mortgage arrears.
"Long-term arrears will remain elevated," the agency said.