, changes to tax credits and bands, increase in excise duties, a 2 percentage point increase in the vat and the introduction of a property tax in 2013. on the spending side, current savings achieved to date include paybill reductions, covering pay rates and headcount, a public sector pension levy, and reductions in social welfare rates. despite these significant adjustments, however, the budget deficit remains very large. the most recent forecasts suggest that the deficit in 2012 will be somewhat below 8 per cent of gdp. although this is less than the target of 8. 6 per cent, public debt is continuing to accumulate rapidly and is expected to peak in 2013 at 121 per cent of gdp. 4. the current situation but while many measures have been taken by the irish authorities to overcome the crisis and to prepare for the exit from the programme, concerns remain. two are readily apparent. the first arises from the high level of mortgage arrears ; the second is the risk to sovereign debt sustainability arising from the high debt - to - gdp ratio. 4. 1 mortgage arrears as a consequence of the crisis, mortgage arrears have risen sharply, with some 15. 1 per cent of mortgages now in arrears for more than 90 days. a key determinant of mortgage arrears is the unemployment rate which stands at just under 15 per cent, three times the level at the start of 2007. mortgage borrowers who become unemployed may rely on savings to meet debt repayments for some period of time. however, the long - term unemployment rate has increased more than six - fold, with the effect that large numbers of people have experienced sharply reduced incomes for more than a year, raising arrears rates. for the banking sector, the combination of mortgage arrears and negative equity is major determinant of loss rates. while borrowers that become unemployed and therefore are unable to service their mortgages but who are not in negative equity can in principle sell their houses and repay the loans, those that are in negative equity cannot. moreover, it is difficult for banks to assess the repayment capacity of distressed borrowers. some borrowers may be experiencing temporary financial difficulties, from which they will recover relatively quickly. these borrowers may need some breathing space until they, for instance, find a new job. other borrowers may be experiencing a permanent decline in income, and require a more extensive modification of their mortgages, while others still may never be able to service

particularly so in dublin. for example, the percentage of respondents expecting national house prices to increase over the next three years has declined by 14 percentage points. the share expecting prices to rise in dublin over the next three years is down over 17 percentage points. furthermore the extent to which prices, nationally and in dublin, are expected to increase is notably lower than in similar surveys carried out in the second half of 2014, with national prices for one year and three years ahead expected to increase by 5 and 10 per cent respectively. the corresponding figures for 2014q4 were 8 and 15 per cent. nonetheless, it is important to note that at 5 per cent, house prices are expected to grow faster than inflation generally in the next year, implying that there is still plenty of demand for housing. the suggestion that macro prudential measures can mitigate speculative forces in the housing market is not new. the imf has presented an analysis on survey - evidence from korea, a country which has employed several forms of macro - prudential tools for some years. 7 its igan and kang ( 2011 ). bis central bankers ’ speeches analysis indicates that tightening ltv caps reduces households ’ expectations of price increases. despite these shifts of house price expectations, current credit availability in ireland appears to be largely unaffected in the first half of the year. while it is too early to assess precisely the short - term impact of the measures, data on the volume and value of mortgage drawdowns from the banking and payments federation ireland ( bpfi ) indicate an increase in mortgage lending in 2015q2, as do data on loan approvals, despite a slowdown in august. finally, property services regulatory authority data indicates that the level of property transactions has continued to grow in the first half of 2015. furthermore, any problems with the functioning of the property market highlighted by these measures are better addressed by policies in other areas. for instance, do building regulations impose unnecessary additional costs and thus constrain supply? 8 and to what extent is the demand for owner - occupied housing reflecting a poorly functioning rental market? clearly, permitting risky lending is not a good solution for problems originating elsewhere in the housing market. conclusion earlier this year, the central bank of ireland brought in macro prudential measures for residential mortgage lending. the motivation for doing so was to limit lending of the type that was shown to be particularly risky in the financial crisis, and thereby enhance the resilience of both households and banks. the measures were not very different