The body representing Irish builders has gave a cautious welcome to the state's €7bn recapitalisation of two national banks, aimed at stimulating lending in the country.

The Construction Industry Federation (CIF) has said it will closely monitor whether the scheme frees up working capital for its members.

The Federation said it hopes the move results in an increase in mortgage lending.

CIF Director General Tom Parlon said: "The real test of the recapitalisation plan is whether or not it gets credit flowing again.

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"CIF will be working with its members to closely monitor if the plan does what it is supposed to in terms of a resumption of normal lending in the economy."

He said getting the banks lending to prospective house buyers again is vital for the economy.

"House prices have been cut by between 35-40% and with interest rate cuts, houses are now more affordable than at anytime since 1997," said Mr Parlon, who suggested: "When it is cheaper to buy a house than to build it you can be sure that you’re looking at the bottom or very close to it."

However, Mr Parlon said buyers aren’t able to take advantage of this because of a lack of mortgage finance.

He said: "At a time when house prices are rock bottom banks should be lending more not less to prospective buyers.

"The economy needs a counter-cyclical lending strategy and the hope has to be that the recapitalisation plan brings this about," added the Director General.

(PR/BMcC)