Private sector credit continues decline

THE amount of private sector credit continued to decline in September, with a dip of 3.4%, reflecting the continuing slump in the Irish economy and tight credit conditions as banks continue to shore up their balance sheets.

The fall in lending to Ireland’s private sector accelerated in September as banks wrote down loans and increased provisions for bad debts in worsening economic conditions, the Central Bank said yesterday.

This is the fourth successive month of falling credit figures in the current cycle with the first dip of 0.8% recorded in June 2009.

The rate of decline has increased in each of the following months, Central Bank figures show.

Mortgage lending has continued to plummet and was down €14 million in the month, making it the sixth monthly drop in a row, the bank said.

The fall brought the annual rate of growth in mortgage lending down to just 0.3% from 0.8% in August.

Residential mortgages account for 85% of household lending from financial institutions and the €14m fall in September leaves the total of mortgages that are outstanding in the country at €147.9 billion.

The annual rate of change in mortgage lending is now down to just 0.3%, according to the latest figures.

Commenting on the decline in mortgage demand, Rachel Doyle, the director of PIBA Mortgage Services, said this pointed to the “compelling case for urgent measures to defrost lending and restore normal prudent lending practices”.

Unless that issue is tackled, recovery will be needlessly prolonged, she said. Those worst affected are first-time buyers, she said.

“Those who wish to move house are also affected but since they are already property owners the impact is not the same,” she said.

Ms Doyle pointed to the recent EBS/DKM Affordability Index survey showing that the cost of a mortgage will, by December, have dropped by 50% over the past three years.

Last month’s Central Bank figures showed a decline in net mortgage lending in August of €84m, following a €71m drop in July, she said.

“With house prices well back into line with the average industrial wage and interest rates at an historic low and likely to remain so until later next year, urgent action is needed,” said Ms Doyle.

Ms Doyle also said that mortgage holders should now consider fixing their mortgage rates, particularly for periods of five years or more.