Updated: 05/07/12 : 14:27:56
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Insolvency laws could impact on house prices

The Irish Government's new insolvency laws could add supply to the housing market, lowering house prices even further with a bottom reached when house prices are between 60pc and 65pc below the 2007 peak, according to an analysis from Standard and Poor's today.

The global ratings agency said that significant levels of personal debt in Ireland, an ongoing recession, and a banking system in crisis have resulted in serious financial problems for a large part of the population.

On June 29, the government revealed long-awaited details of the new personal insolvency legislation, a condition of the country's bail-out package from the EU/IMF in late 2010.

"We consider this development to be a necessary step forward in tackling the growing mortgage debt crisis in Ireland. However, the government also needs to resolve the current impasse on new repossession orders if Ireland is to have a body of laws and regulation that work effectively for both borrowers and lenders," it said.

"Under the proposals, borrowers who are struggling to pay their debts would be able to enter into a non-judicial insolvency arrangement with their creditors, overseen by a new Insolvency Service, provided that they have first worked with the banks to explore other solutions. Bankruptcy will remain an option, but the government proposes to cut the bankruptcy period from 12 to three years. Because legislation is unlikely to be passed until late 2012, and it will take time to set up the Insolvency Service, we do not expect the new regime to take effect in practice until mid-2013."

Standard and Poor's expects that banks will, wherever possible, seek to agree alternative outcomes with borrowers that fall short of the sort of debt write-off that would result from the new insolvency arrangements.

"Together, these alternative outcomes and the insolvency arrangements could add supply to the housing market, lowering house prices more quickly to the clearing level or trough by late 2013. We currently expect that prices would on average bottom at 60pc-65pc below the 2007 peak," it said.