One in five residential mortgages that are in arrears for more than 90 days are likely to end up with the associated properties being repossessed, according to Fitch ratings agency.

In a report on the Irish economy and Irish banks, it said it expected the level of repossessions to increase significantly next year, and that the arrival of the resulting properties on to the market would depress property prices.

While the agency expects single-digit price growth next year, subject to regional and dwelling type, in a base case stress scenario it could see prices falling by another 10 per cent. It does not see current price changes in the Dublin property market as sustainable, and says they are based on a supply shortage.

The agency expects loan arrears to peak in 2014, and that 40 per cent of loans that are more than 90 days in arrears will begin to “reperform”. Another 40 per cent will be the subject of some type of writedown, with 50 per cent of the debt in this category being written off. The final 20 per cent of loans will see the associated properties being repossessed.

Overall, the agency believes 4.8 per cent of outstanding mortgage balances (ie, €2.2 billion) could be lost by the banks.

The agency’s analysis is based on its discussions with the Irish banks.