The easing of the Central Bank's mortgage lending rules will "raise house prices", the chief economist in the Department of Finance has said.

John McCarthy confirmed to the Public Accounts Committee yesterday that he expects house prices to increase when the new measures come into effect.

Last month, the Central Bank confirmed that it was softening its lending restrictions to allow first-time buyers to borrow up to four times their gross income - an increase from the previous rate of three-and-a-half times. The rules are set to take effect in the new year.

Responding to questions from the committee chair, Sinn Féin TD for Laois-Offaly Brian Stanley, the senior civil servant said he expected an "upward move" in house prices.

"I don't want to comment on Government policy but on the macroprudential tools... if you have more demand for housing, which is what the relaxation of the tools will allow, it will raise house prices.

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"I don't think it will be dramatic and I think that's the general consensus among the economic profession," he said.

Most recent figures from the Central Statistics Office, published in August, revealed that house prices nationally had risen 12.2% over the previous 12 months.

Mr McCarthy met the Dáil's spending watchdog to answer questions along with other top officials from the Department of Finance, including Secretary General John Hogan.

Fine Gael TD for Dún Laoghaire Jennifer Carroll MacNeill asked the civil servants how the Department of Finance and the Department of Public Expenditure were dealing with construction inflation in terms of the delivery of the Government's National Development Plan.

Mr McCarthy replied that inflation in the sector was "clearly an issue" both in goods and in the wages paid to workers.

"There really is a shortage of labour in the construction sector. And this is something that, you know, would be a concern in terms of value for money," he said.

"What Government is trying to do at the moment is trying to build the NDP. It's trying to build 40,000 or 50,000 housing units per annum. It's trying to retrofit the mica homes, and you have the usual private sector construction activity."

Mr McCarthy continued: "I think it's fair to say the demand for labour exceeds supply at the moment and that is having an impact in terms of wage inflation in the sector and that's feeding through into property price inflation, land price inflation, etc."

Mr McCarthy clarified that he was "absolutely not" suggesting that construction should be halted but said "that kind of inflation will be concerning in terms of getting value for money".

There were also exchanges between Department officials and Fianna Fáil TD for Cork East James O'Connor, who called for rules governing deposits for mortgages to be eased to help first-time buyers acquire their own home.

Mr O'Connor said he feared the attitude in the department was that "keeping household debt low is a good thing".