No let-up in rush for mortgages

MORTGAGE lending accelerated again in October as the headlong rush to get into the property market continued unabated.

Spurred by the lowest interest rates in history, people have not been scared out of the market by increased concerns of a house price bubble.

Central Bank figures show the value of outstanding mortgages rose by an annual 24.8% to €51.75 billion in the year to the end of October.

So far this year the amount being borrowed per month to buy apartments and houses has been running at about €1bn per month.

At the end of September, the annual growth in the amount borrowed was running at 24.7%.

These latest figures and the bounce in consumer sentiment released yesterday by the IIB/ESRI Consumer Sentiment Index suggests consumers will stay active in the coming months.

Fears of higher interest rates kicking in next year may act as a deterrent, but at present, the shift in sentiment about economic prospects looks set to keep demand hurtling along.

As part of the Irish Financial Services Regulatory Authority, the bank last month warned lenders should “tighten up” procedures to ensure borrowers would not be overstretched when interest rates hardened.

However, they concluded there was no cause for concern about the “financial soundness” of our banks or other lending institution on the basis of their past lending policy.

These fears were based on the belief lenders in Ireland were pumping money into the pockets of the consumer in an effort to raise their own stake in the lending market and to boost profits.

The boom in mortgage lending continues, however, despite warnings from two leading stockbroking houses, Goodbodys and Davys, that house prices could collapse under interest rate pressure that could come sooner than expected if the global economic upturn starts to power ahead faster than previously expected.

It could be triggered by a sharp fall-off in demand as supply finally catches up with current housing needs.

Fears have been expressed also that up to 30% of houses being bought are second houses for investment purposes.

Again, if demand for rented accommodation slackens further, investors might high-tail it out of the market, pushing prices down in the scramble.

However. there are no signs of prices collapsing and the latest figures suggest they are forging ahead at 14% per annum despite earlier warnings from the Economist magazine and more recently the OECD that house prices could become a flash-point for Irish investors.

Annual growth in private-sector credit excluding mortgages was 12.5% in October, an increase of about 3%, which suggests the economy is on the way up, said Bank of Ireland chief economist Dr Dan McLaughlin.

He dismissed scares about a house price bubble as over the top. “House prices only collapse when unemployment is rising and all the indications now are that the global economy is on the way back up while unemployment in Ireland has stayed remarkably low.”