Home lending ‘abnormally low’ despite spike in April

The country’s chronic housing shortage is set to persist and push property prices even higher while, at the same time, the Central Bank’s mortgage rules continue to restrict lending to ‘abnormally low’ levels despite a pick-up in April.

New figures released by the Banking and Payments Federation of Ireland show a 35% year-on-year increase in the value of mortgage approvals during the month.

A total of 2,978 approvals worth €573m were recorded with a near 50% rise in first-time buyers which accounted for €317m worth of lending.

Analysts called the sharp increase as exceptionally strong and “a pleasant surprise” but warned that the spike came on the back of a relatively weak opening quarter of the year.

Reacting to the latest figures, Professional Insurance Brokers Association chief operations officer Rachel Doyle again called on the Central Bank to ease the lending restrictions it introduced last year which she described as restrictive and argued are limiting lending to abnormally low levels.

“Our Central Bank rules, by imposing both a loan-to-income and a loan-to-value threshold, make us an extremely restrictive regime,” said Ms Doyle.

“Other jurisdictions have variations of these but are not as extreme, generally one or the other.”

Central Bank governor Philip Lane has said the bank is committed to reviewing the rules but defended the limits which he said are designed to reduce the risk of the boom-to-bust cycles that ruined the economy over the past number of years.

Analysts at Investec Ireland said a separate report released by the federation yesterday showed that constraints on the supply of homes remain severe, particularly in Dublin.

The report showed an encouraging 20% increase in housing completions in the first quarter of 2016 but noted that at the current rate just 15,000 homes would be built this year; significantly fewer than the estimated 25,000 units that are needed.

Analysts John Cronin and Cian Harty described the situation as gloomy and predicted there was no end in sight with the undersupply expected to persist until the end of 2018 at the earliest.

This posed a danger of driving house prices ever-higher, they said.

Meanwhile, figures from the Central Bank showed that nine out of 10 distressed mortgage holders who completed the bank’s Mortgage Arrears Resolution Process between 2014 and 2015 received an alternative repayment arrangement from their lender.

The scale of the country’s arrears crisis remained evident, however, with close to 164,000 mortgage holders entering the process during that time.

General lending to Irish households also remains stunted with a drop-off of 2.4% in April, Central Bank figures showed.

Households repaid €1.8bn more than was advanced in new loans in April which is cause for concern, says Merrion Stockbrokers chief economist Alan McQuaid.

He said: “Households and businesses may still want to pay down outstanding debt which is fine. However, with the cost of funding remaining high, particularly compared with the eurozone average, there is no incentive to take on new borrowings, which is a concern.

“The bottom line is that credit will need to flow at a much stronger level than currently if the Irish economy is to grow to potential over the long-term.”

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