House prices in Ireland will rise by 9.4 per cent this year and by 5.2 per cent in 2016, according to a new forecast by Davy

The stockbroking firm said it also expects prices to rise by a further 4.5 per cent in 2017.

In its latest forecast, Davy noted that house prices slowed in the first two months of the year following the introduction of new Central Bank mortgage lending rules. It said that while house price inflation will slow, there will not be sustained declines in prices over the coming years.

Davy said the new Central Bank rules will likely anchor house price inflation to earnings so that the price to income ratio remains close to five times. However, it added that the full impact of the rules will not become apparent until later in the year.

“These rules should anchor house price inflation to income growth over the medium term by limiting the amount of leverage in new lending. Our forecasts imply that the house price to income ratio will rise modestly from around 5.0x currently to 5.4x by 2019,” it said.

The stockbroker said that while transactions and lending have increased substantially, the housing market remains “exceptionally illiquid.”

“Residential property transactions equalled just 2 per cent of the housing stock in 2014 and mortgage lending 1 per cent. At current rates, the average property is transacting just once every 50 years. Mortgage lending, at 1 per cent of the housing stock, is still close to its lowest level since records began in 1970,” it said.

Davy said it expected €4.6billion of loans for house purchase in 2015 with mortgage lending to slowly rise to €11.0 billion by 2019, up from €3.9 billion last year.