Slight fall in mortgage debt 'temporary'

CREDIT growth slowed moderately in the month of August but mortgage debt, which fell marginally, is still averaging €1.3 billion per month as the push to buy property continues.

Private sector lending grew by 24.7% in August against 25.4% in July.

However, that's still three to four times the European average.

Commentators said the modest slow down was a temporary glitch and no more than that.

And the strong borrowing trend is set to continue as the economy continues to show good growth and employment increases.

Central Bank warnings that we are getting in over our head are being ignored, the figures suggest.

Despite concern of a slow down in house prices and the threat of rising interest rates, residential mortgage lending slowed only marginally after a record increase of 27.8% in July to 27.6% in August.

The Central Bank has been concerned for some time about the rate of credit growth.

Governor John Hurley warned that if these rates continued, Ireland could become one of the most indebted countries in the euro area.

Some economists are less pessimistic. They argue we are playing catch up with the rest of Europe. Bank of Ireland economist Dan McLaughlin is one of those, as is Dermot O'Brien of NCB.

Alan McQuaid, chief economist, Bloxham Stockbrokers, warned credit growth is set to remain three to four times higher than the Eurozone average.

Good job prospects and continuing low interest rates suggest a pretty vibrant credit environment in the months ahead, said Mr McQuaid.

Despite this, he believes the debt scare is over done. "We think there is much more money out there in the Irish economy, and consumers are a lot more cash-rich than the official statistics show, suggesting that any downward movement in house price and/or increase in interest rates will be less painful than the central bank believes."

Slower overall credit growth hit the demand for mortgage credit growth, which eased slightly to 27.6% in August as against 27.8% in the previous month.

Following a record increase in July, new mortgage lending of €1.3bn in August was close to the average monthly increase between March and June this year. Non-mortgage credit growth dropped to 20.4% in August from 21.5% in July.

Total lending by credit institutions in Ireland to non-Government Irish residents increased by over €1.6bn or less than 1% to €185bn last month.

That figure compares with a €2.3bn expansion in credit in the same month last year.