Mortgage borrowing surged by 26.1 per cent in the year to February, the highest level since collection of the data started in 1996. Low interest rates and a strong housing market continue to push mortgage lending higher, with €900 million in new loans extended in February alone.

Weak economic conditions in the euro zone are expected to keep interest rates low for a prolonged period, with recent comments from senior European Central Bank (ECB) figures suggesting that rates could fall again, if growth does not revive. Market analysts will be watching today's ECB meeting for any signal on rates, although most forecasters do not expect a reduction to be announced immediately.

The Central Bank figures indicate that low interest rates are continuing to encourage borrowing for mortgages and other uses. Overall, private sector growth was running at an annual rate of 19.3 per cent in February, up from 18.8 per cent in January and the highest rate of growth since April 2001. The 26.1 per cent mortgage lending rise was clearly a key factor, but annual growth in other lending rose to 15.2 per cent from 14.6 per cent a month earlier.

Total private sector credit stands at €164.7 billion, €21 billion up on the same month last year. Mortgage lending stands at €56.4 billion, almost €12 billion higher than February 2003.

Commenting on the rise in overall credit, the Central Bank said part of the annual increase could be explained by weak credit growth in the same month last year, which affected the annual comparison. However it added that "both mortgage and non-mortgage lending were strong in February 2004".

Loans increased across the board. While the breakdown of the figures was affected by a reclassification of loans by one credit institute, the Central Bank said there was strong growth in loans of all durations and in overdraft finance.

IFSRA, the new regulator which is linked with the Central Bank, has recently called on the lending institutions to ensure they are applying appropriate criteria for judging the ability of borrowers to repay. However, despite this, mortgage growth continues to accelerate, driven by first-time buyers, householders trading up and substantial borrowing for investment and holiday properties.

A number of economists have warned that the sharp rise in borrowing and house prices could pose risks to the economy. Mr Danny McCoy of the ESRI, presenting its latest quarterly commentary this week, warned that if borrowing continued at current levels, the property market could tilt towards overheating in the next year and a half.

The key issue is whether borrowers will be able to meet repayments when interest rates rise. However, for the moment, signs of economic revival, low borrowing costs and rising house prices look set to keep credit growth moving ahead.