House loans record sparks fears

FEARS of overheating in the property market were heightened yesterday after new figures showed that borrowing remains at a 20-year high.

The Central Bank says mortgage lending has reached a staggering €1 billion a month, a 27% increase on the amount loaned out by banks and building societies last year.

In May alone €1.3 billion was borrowed by consumers to finance buying their houses.

The surge in lending has led to a steep rise in house prices and put the squeeze on many first-time buyers who are stretching themselves to make repayments. With interest rates expected to rise either later this year or early next, the continued increase in borrowing could lead to an overheating in the housing market.

"Despite concerns expressed by the Irish central bank about the level of credit growth, there is very little it can do about it, other than outline its fears to the lending institutions. However, unless there is a major external shock, pushing up interest rates dramatically and/or leading to significant job losses, then credit demand will remain strong," said Bloxham Stockbrokers chief economist Alan McQuaid.

However, he pointed out that household budget surveys have shown that 75% of new first-time buyers believe that their mortgage repayments are manageable at current levels.

He added that although credit growth is expected to ease over the rest of the year because of higher interest rates, growth would remain well into the double digits.

Meanwhile, Dublin-based estate agents Douglas Newman Good said house prices in the capital have risen by 8% so far this year and that the average price of a second-hand home was now over €367,000.

The latest Douglas Newman House Price Gauge showed only a 4% rise in prices between April and June, but an 8% rise since the beginning of the year.

At the upper end of the market, properties worth in excess of €750,000 have risen by 15% for the first half of the year.

Transactions in homes valued at over €1 million have doubled this year compared to 2003, DNG found.

DNG economist Paul Murgatroyd said first-time buyers have benefited from higher levels of supply and with interest rates as they are at present, and the economy having seen a general improvement in conditions, those wishing to get on the property ladder now have the favourable market conditions to do so.

He added, "The top end of the residential market has been the star performer in the first half of the year with prices rising by an average of 15%. Conditions still favour trading up, and with more people competing for a restricted supply of 4- and 5-bed semi and detached properties, prices have surged ahead."