Mortgage lending increases by 25.8%

BORROWING is growing at the fastest rate for nearly three years, according to statistics from the Central Bank yesterday.

Mortgage lending grew by 25.8% in January, up from 25.5% last December, the monthly private sector credit figures show. And personal borrowing grew by 18.7% in January, up from 17.9% in December, the highest rate of growth since July 2001. Some €2 billion was borrowed in January, with non-mortgage borrowing accounting for about two-thirds of this number.

The rapid increase last month in lending will raise concerns that the housing market is overheating and individuals are borrowing too much. But IIB Bank chief economist Austin Hughes said the statistics are not that alarming. In the run-up to Christmas there were signs that spending has slowed down, reflected in retrial sales figures and that the January private sector credit figures reflect an improvement in consumer sentiment since the start of the year.

"These figures reflect an improvement in the economy. What is quite interesting is that you are starting to see a bit of life in the non-mortgage lending and there are two elements for it: one, there is sign of movement in the general economy and the second is that income growth for consumers is fairly modest ... and they are borrowing to tide them over," he said.

On the mortgage lending side, Mr Hughes said there was still demand in the economy for people to get on the housing ladder and not a concern of overheating in the property market. "I think it is a consistent number, but if you were to see the trend continuing for the next while, that would be a little bit of a concern. The cost of (borrowing) money is cheaper and there is talk of it getting cheaper before it gets dearer. So against that sort of backdrop, if the economy is picking up, if the demographics remain supportive for building record numbers of houses you would expect to see borrowing growing. It would be a far more alarming figure for the economy if we saw a drop in borrowing for the past month."

Though borrowing has surged over the past few years, he said there should be no fears that people are borrowing too heavily.