€4.7bn jump in household savings ‘driven by mortgage lending rules’

A huge annual surge of over €4.7bn in household savings reveals the challenge facing young buyers because of the year-old Central Bank mortgage lending rules, Savills estate agent has claimed.

CSO figures showing that gross savings leapt last year to over €9.1bn from €4.4bn in 2014, show the mortgage lending rules are helping push first-time buyers and their parents “to save harder for housing deposits”, said Savills Ireland research director John McCartney.

“Since the start of 2015, new mortgage rules mean that home buyers can borrow less,” Mr McCartney said. “Therefore, they have to save bigger deposits. In this context, it is not surprising to see a rise in household savings.

“In this context, the most likely explanation is that first-time buyers, and their parents who are increasingly providing financial assistance, are saving more”, to fund the move onto the property ladder.”

Estate agents and mortgage brokers and other home-selling industry groups have criticised the Central Bank rules ever since their introduction over a year ago.

The rules, which are more properly called macro-prudential policy for the residential real estate sector, have placed ceilings on the amount first and second-time buyers can borrow to buy a home, based on affordability and other sustainability factors.

The Central Bank wants to prevent any re-occurrence of the boom in credit that pumped up property prices and contributed to the country’s disastrous banking bust.

Many analysts say the huge shortage of homes suggests that prices would have already reached unsustainable levels and eaten up savings of home buyers, if there were no rules in place.

Some influential analysts, however, argue the rules are not sufficiently flexible and require tweaking.

The Central Bank has signalled its first review scheduled at the end of the year will be based on hard evidence of the effects of the rules.

The CSO said yesterday that the increase in savings was “driven” by a large rise of over €8.1bn “in gross disposable income” available to households.

Philip O’Sullivan, chief economist at Investec Ireland, said that households putting aside a lot of money for a house deposit had “definitely played a role”, but was not the only reason driving the large jump in savings.

He said that increases in employment and wages — as unemployment has dropped from its 2012 peak of 15.1% to 8.6% currently — as well as cuts in two budgets on taxes on income, at a time of zero or negative inflation, had also played their part.

Evidence showed that about half of the low volumes of sales in the housing market was being financed by cash buyers.

Mr O’Sullivan said that the turnover of housing stock in the market was at very low levels.

Meanwhile, households were also starting to spend on so-called big ticket items, such as cars, he said.

The CSO said that the gross saving ratio of households, which measures savings as a percentage of total gross disposable income, increased from 5% in 2014 to 9.5% last year.


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