Demand for mortgage loans increases

Demand from home buyers for mortgages has recently picked up and is expected to stay firm over the next few weeks, according to a Central Bank survey.

Its survey of five lenders showed that households sought more loans for both mortgages and for consumer purchases.

Home purchase loans rose in the second quarter for the first time since early 2015, helped somewhat by a loosening in lending restrictions. 

Significantly, the Central Bank said lenders expected demand for home loans to extend through this third quarter. Demand for consumer credit has risen in every quarter for more than two years.

Marking the 10th quarter of growth, Irish SMEs also increased their demand for business loans, the survey showed, and lenders said they expect demand for loans to increase in the current quarter for all types of business loans. 

Lenders said competition meant their margins on lending to SMEs falling “slightly”. So-called credit standards will tighten for long-term business loans in the third quarter, however.

However, Alison Wrynn, economist at business group Ibec said demand for SME loans may fall in the coming months “due to uncertainty surrounding Brexit”.

The survey is part of a much wider survey of banks conducted by the ECB. Across the eurozone, lenders expect lending to continue rising at a moderate pace in the third quarter, helped by a new round of ultra-cheap ECB loans amid easing credit standards, the ECB’s quarterly lending survey showed.

Banks also said they did not expect credit shocks from Britain’s decision to leave the EU, and that they would continue to participate in the ECB’s cheap loan scheme to bolster their profitability, according to the survey of 141 lenders.

The relatively upbeat survey is likely to be welcomed by the ECB, which has provided several rounds of stimulus to boost bank lending, support growth and ultimately revive inflation.

Last month, the ECB reintroduced its programme of targeted longer-term refinancing operations, providing zero interest-rate loans to banks.

Under the terms of the programme, banks are charged the ECB deposit rate if they exceed their lending targets — currently earning them a rebate as the deposit rate stands at -0.4%. 

A net 24% of surveyed banks said they expected corporate lending to rise, driven by loans to small and medium-size firms, while a net 17% expected a further rise in housing loans, the ECB said. The ECB meets tomorrow when it is tipped to leave interest rates on hold.

* Additional reporting: Reuters


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