New mortgage lending is expected to top €5bn this year with the Central Bank’s new loan restrictions likely to see drawdowns front-loaded in the first half of 2015.
Mortgage approval data released by the Banking and Payments Federation of Ireland suggest that there was a huge surge in activity late last year ahead of the introduction of new lending restrictions announced last month.
A total of €3.85bn was drawn down in the mortgage market last year, a 54% year-on-year increase, €1.3bn of which came in the final quarter.
Goodbody Stockbrokers predict that with approvals lasting up to six months, drawdowns are expected to spike dramatically in the opening half of 2015 as the effects of borrowers’ haste to avoid the new restrictions become apparent.
Despite forecasting a tail-off in the latter part of the year and into 2016 as the new restrictions dampen demand, 28% growth in the market is expected over the course of this year with further, modest increases over the following 12 months.
The value of new lending is projected to grow to €5.6bn in 2015.
Analysts said while existing and projected growth is positive, the market is still recovering and some way short of the requisite level.
“The growth achieved in 2014 is indeed positive, but it is worth noting that the market is still in recovery mode to what we believe is a ‘normal’ level of €8bn lending per annum,” said Goodbody chief economist Dermot O’Leary.
The new rules introduced by the Central Bank limit the value of a deposit that can be secured as well as imposing an upper loan limit of 3.5 times gross income.
First-time buyers will be able to secure a mortgage with a 10% deposit up to a limit of €220,000 with a 20% deposit required for any portion of the loan above the limit. Borrowers other than those looking to purchase their first home will also have to stump up a 20% deposit.
The aim of the restrictions is to limit mortgage lending by affecting consumers’ expectations of future house price increases and restricting the credit available to them.
Despite the increase in mortgage lending, the ratio of mortgages to property transactions actually declined to 45% in 2014, suggesting that cash remained king in the market.
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