Mortgage lending and credit ‘weak’

By Pádraig Hoare

Mortgage lending is “going in the right direction” but also “much smaller than it should be”, according to an organisation representing brokers.

Latest Central Bank household lending figures show mortgage loans increased by €63m on a net basis in July, the second consecutive monthly increase.

The bank said July was the first non-quarter-end month to record a net monthly rise since late 2012, another indicator that mortgage credit is returning to positive growth.

However, Brokers Ireland said mortgage lending remained “weak”, given the pent-up demand for housing.

Director of financial services at the organisation which represents almost 1,250 broker firms, Rachel McGovern said: “If the mortgage market was in a healthy state, Ireland should be attracting in foreign lenders, which it’s not. There are many factors at play, especially the lack of suitable homes for purchase.

“The increase in lending is also coming in the wake of ever-increasing house prices, although the pace of increase is slowing, particularly in Dublin.”

It looks as if mortgage lending for this year would probably be of the order of €9bn to €10bn, Ms McGovern said. “That level would have been considered normal pre- the financial crisis.

“However, given the pent-up demand levels, estimated to be of the order of 40,000 homes a year, it’s weak.”

Merrion’s chief economist Alan McQuaid said the July banking data continues to indicate a weak overall credit environment in Ireland.

Deposits from households edged back from June’s record high, to just over €102bn in July, the Central Bank’s report said.

Household deposit growth declined by €27m, ending seven months of consecutive net increases.

In annual terms, household deposit lodgements were €3.3bn higher than withdrawals, growing by 3.4% over the year.

This annual growth was entirely driven by overnight deposits, with decreases seen in all other deposit maturity categories.

“At the end of the day, credit will need to flow at a much stronger level than currently if the economy is to continue to grow strongly over the long-run,” Mr McQuaid said.

The latest set of credit figures are once again a mixed bag, with some good and bad features, Mr McQuaid added.

“The very high level of deposits, despite ultra-low interest rates, still suggests that households remain cautious, all things considered, and appear reluctant to take on more debt.”

Banks held €11.2bn more in household deposits than loans at end-July, the Central Bank said.

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