These factors all suggest a softening housing market, which could point to a tail-off in lending, yet this year mortgage providers expect to match their 40bn in gross advances from 2006, according to one analyst at an independent brokerage, with some lenders predicting growth of 16-20%.

According to the IIB/ESRI survey, consistently rising interest rates over the last 18 months explain the bearish turn among consumers. But lenders are responding to the changed environment by trimming mortgage spreads.

Irish Life and Permanent's mortgage arm, Permanent TSB, will be cutting tracker mortgage rates by 25 basis points, with some loans reduced to 0.75% above the European Central Bank rate of 3.75%. The move follows similar cuts on low loan-to-value loans by rivals AIB and National Irish Bank.

"Lenders are taking down spreads in response to a lot of competitors in the market . . . not because of lower volumes of business, " the analyst said.

Nonetheless, new house purchases are moderating along with construction numbers, leading to competition in new segments as the low hanging fruit in the first-time buyers market becomes more scarce. Mortgages to first-time buyers represented 21% of loan value in the last quarter of 2006, according to an Irish Bankers' Federation Survey published in February. Mover purchase and buy-to-let mortgages took up 28% and 21%, respectively. Significantly, switched mortgages were the only segment to grow, reaching an all time high of 16% of the total loan value in the quarter.

The shift away from first-time mortgages indicates consumers are looking for better value, Colm Furlong, managing director of First Active, told the Sunday Tribune. He predicted more debt consolidation and mortgage switching driving the market this year amid a less frenzied buying atmosphere than we've seen in recent years.

Sub-prime lending is also set for a small boom in 2007 as IL&P and IIB have joined Start and GE Money in the segment, which Davy's has predicted could grow to 4bn of gross advances this year. Davy analyst Marc McGovern said credit repair and debt consolidation would underpin the growth . . . not unlike the mainstream market . . . with fatter margins on the higher interest loans attracting more lenders over time . . . notwithstanding rising delinquency in more mature sub-prime markets in the US and UK.