Housing market boom prompts record borrowing

Irish people borrowed at record levels last year with banks lending more than €21bn in mortgages, it emerged today.

The Central Bank recorded the highest ever monthly rise in private sector credit with lenders handing out €6bn in December, including €3.5bn for residential mortgages.

This brought the annual increase in credit for 2005 to €59bn, compared to a rise of €37bn in 2004. Households and non-financial corporations accounted for €25bn.

In its December bulletin, the Bank reported strong demand for residential mortgages in line with developments in the housing market which saw prices slow in the first six months and accelerate from October.

During 2005, net lending for residential mortgages increased by €21.1bn, well above the €16.4bn in 2004.

The survey, however, revealed banks had reclassified €900m to residential mortgages last month which helped to boost the figures.

The bank noted that credit card debt was one of the slowest-growing areas of credit last year.

Despite 152,000 new cards issued, outstanding debts rose by only 15.4% during 2005.

The bulletin comes as one of the country’s leading mortgage providers, Permanent TSB, and leading think-tank, ESRI, reported an average house price growth of 9.3% last year, compared to 8.6% in 2004.

The survey showed the growth rate accelerated dramatically as the year went on and finished with first time buyers forking out over €270,000 for a home.

Prices in Kerry grew the fastest – up 15% – compared to 10% in Dublin and just 2% in Leitrim.

Niall O’Grady, Permanent TSB head of marketing, said: “At this time last year we had projected annual growth of 5%-7% for 2005, based on the moderate price growth experienced in the final months of 2004.

“Indeed this modest rate of growth continued into 2005 until a significant pick up in prices took hold in the second half of last year.”

Mr O’Grady noted the striking regional growth rates with Kerry, Cavan, Kilkenny and Monaghan each experiencing growth of 14% or more.

Figures for December showed houses prices nationally rose by 1.2%, unchanged from November but six times the rate in December 2004. Permanent TSB forecast growth of near 10% for next year.