The spending plans of 1.1 million Special Savings Incentive Account (SSIA) holders could boost house prices by up to 10 per cent, according to a study by IIB Bank and the Economic and Social Research Institute (ESRI).

IIB chief economist Austin Hughes said the use of SSIAs to purchase property made it likely that very rapid borrowing growth would continue and even accelerate during the year.

The release of €16 billion of maturing SSIA funds starts at the end of next month when about 40,000 accounts mature.

One in four SSIA holders have not decided what to do with the proceeds of their account, according to the IIB/ESRI consumer sentiment survey.

However, among those who do know what they intend to do with their SSIAs, around 14 per cent of maturing money will be spent on property.

Mr Hughes said this suggested that roughly €2 billion of SSIA money would flow into property and when related borrowings were taken into account, €9-€12 billion would be used to buy Irish property, with another €3-€4 billion used to invest in overseas property.

With new borrowings in the Irish residential market running at around €30 billion per annum, an additional €10 billion in spending power over the next 12 months will have a significant impact, he said.

Price inflation in the housing market has picked up since last summer, suggesting that the SSIA effect is already being felt.

A surge in the supply of properties is helping to restrain prices, while interest rate increases could also dampen the impact of SSIAs, but Mr Hughes added that it was not unreasonable that SSIAs would add 5-10 per cent to Irish house prices over the next 18 months, with scope for larger gains in certain areas.

The IIB/ESRI survey, conducted in February this year, found that SSIA holders favour Irish property over foreign property by three to one, reflecting demand from people trading up, first-time buyers and people who want to buy property for their children.

ESRI economist David Duffy said consumers expected house prices to rise by an average of 6 per cent this year.

One in three consumers said they expected house prices to "increase a lot", compared to one in five consumers who were asked the same question in February 2005.

Seven out of 10 consumers expect interest rates to rise in 2006, in line with economists' predictions that the European Central Bank (ECB) key interest rate will end the year at 3.25 per cent. It is currently 2.5 per cent following two quarter point increases in the last five months.

Around 7 per cent of consumers believe higher interest rates will significantly affect their spending power, according to the IIB/ESRI survey.

Up to 50,000 borrowers could face "an unpleasant shock" if the ECB quickly raises its key rate to more than 3 per cent, Mr Hughes said.

"It is clear that a small number of borrowers, particularly those on low to middle incomes, are likely to be stretched."