New figures from the Banking & Payments Federation Ireland (BPFI) show mortgage approvals surged 25.7% higher on an annual basis in the three months to the end of August.
PIBA chief operations officer (COO) Rachel McGovern warned that the sharp uptick in approvals will not translate into a similar increase in drawdowns and house purchases though.
The BPFI figures illustrate a growing demand for mortgages — much of which won’t be realised anytime soon, Ms McGovern said, adding that in as many as a third of cases, approvals won’t lead to actual drawdowns due to a lack of available homes.
“Clearly many prospective buyers realise, as we saw in the recent Daft.ie rental report, that in large swathes of the country it is cheaper to buy than rent and this is driving demand.
“However, because of the growing mismatch between demand and the availability of suitable properties, along with the impact of the Central Bank mortgage lending restrictions, lending for the year 2016 is likely to be of the order of €5bn, when it should be closer to €10bn.
“The dearth of suitable properties in urban areas in particular is squeezing out first-time buyers and indeed second time buyers, many with young children, who are trapped in unsuitable accommodation,” Ms McGovern said.
Approvals were up 4.2% month-on-month in the period to the end of August.
A total of 3,411 mortgages were approved per month, on average, during the three-month period.
Almost half of the mortgages approved (48.1%) were for first-time buyers (FTBs) while mover purchasers accounted for 1,120 (32.8%).
The average value of mortgage approvals per month in the three months to the end of August was €682m.
The value of mortgage approvals rose by 2% year-on-year and by 3.5% month-on-month.
While the figures revealed a huge year-on-year surge in approvals in the three months to the end of August, total growth in mortgage lending to date this year remains subdued with volumes up 0.7% and mortgage values up 5.5%.
Davy Stockbrokers chief economist Conall Mac Coille said the sluggish growth to date this year may see mortgage lending fall short of its full-year estimate.
“We had expected mortgage lending for house purchase to expand from €4.4bn in 2015 to €5bn in 2016. However, with just €2bn of lending in H1 we may struggle to attain our forecast.
“That said, transactions in August appear to have bounced back; they are set to show at least 10% nominal growth. This could be consistent with with the market rebounding after a post-Brexit referendum lull.
“The bigger point is that the lack of homebuilding will inevitably hold back mortgage lending, increasing the pressure on government to take action to stimulate the sector. So we will be watching Budget 2017 for the mooted Help-to-Buy scheme and other proposed measures to help reduce homebuilding costs such as reducing VAT, or the Irish Strategic Investment Fund (ISIF) providing finance for development,” he said.