Increased credit could lead to higher house prices, economist Dr Barra Roantree has warned, stressing the Central Bank needs to strike a balance.
Dr Roantree was speaking to Newstalk Breakfast as the Central Bank confirmed changes to mortgage lending rules.
Dr Roantree said it will be important to see how the Central Bank will decide on interest rates, adding it could come up with a solution that was “more blended”.
He also said there was a case for making “tweaks” to the current regulations.
Rising interest rates could impact housing prices and could squeeze some people out of the market, he warned, while also questioning the Government's decision to introduce a concrete levy to help fund the Mica Redress Scheme.
On Tuesday, Minister for Finance Paschal Donohoe confirmed the levy would be halved from 10 to 5 per cent following concerns raised by a number of Cabinet ministers.
However, Dr Roantree said the levy, even at five per cent, was “tokenistic” rather than substantial given how small its contribution would be compared to the cost of the redress scheme.
The levy was going to be economically damaging and was punishing the wrong people – new home buyers, he said.
The basics of economics show the levy will be passed on to purchasers, he explained, and could have an impact on building costs.
“It doesn’t make sense,” he added, suggesting there are other ways for the Government to raise funds in much less economically damaging ways.
Speaking after the Central Bank's announcement, Sinn Féin’s finance spokesperson Pearse Doherty said the move reflected government policy failures.
It was not acceptable that people had to borrow €400,000 to buy a house in Dublin, they should not be in this position, he told RTÉ radio’s Today with Claire Byrne show.
Mr Doherty told RTÉ Radio's Today with Claire Byrne show that the country is in a crisis. He added this was not a normal situation and normal rules did not apply.
Responding to claims from the European Central Bank which estimate the European housing market is 15 per cent overvalued, he said that figure would be corrected.
However, he said that is not the case in Ireland due to the shortage of housing.
Supply needed to increase so that prices would be reduced and people could get on the property ladder. "We shouldn’t be in this position," he said.
Mr Doherty also warned that return to the situation which followed the "Celtic crisis", when people had been locked out of the housing market, must be avoided, as should a situation where interest rates spiral.