Irish house price crash predicted

The International Monetary Fund has warned that Ireland's personal debt levels and the spiralling cost of houses threaten to undermine future prosperity.

In its latest report on the health of the economy, the IMF said the property market faces an "abrupt" downturn and not the soft landing predicted by other commentators.

The IMF said: "Bank credit to property-related sectors has grown rapidly and now accounts for more than half of total bank lending. Household debt as a share of household disposable income rose to about 130% in 2005, among the highest in Europe."

"Growth has become increasingly unbalanced in recent years, with heavy reliance on building investment, sharp increases in house prices, and rapid credit growth, especially to property-related sectors."

The IMF warned spending increases on public services should be minimal. "Modest fiscal tightening would be desirable in 2007, given the strength of domestic demand, potential risks of a hard landing, and the need to prepare for the ageing population," the report said.