Mortgage lending at 40-year low, says expert

Despite an increase in loans to first-time buyers and mover-purchasers for the first time since 2006, an industry expert has predicted that 2012 could be the worst year for mortgage lending since 1971.

The latest Irish Bank Federation/PwC Mortgage Market Profile shows 3,225 new mortgages to the total value of €524m were issued during the second quarter, 22.6% more than during the first.

However, the value of the loans issued was €100m less than the corresponding period last year and €115m less than in the last three months of 2011.

The Irish Banking Federation (IBF) pointed out that while there was a 9.2% decrease in the number of mortgages issued, “both the first-time buyer and mover-purchaser segments recorded increased activity year-on-year for the first time since 2006”.

These two segments account for more than 80% of all new mortgages issued and, in effect, 88% of all mortgage credit now goes to the home-purchasing sector of the market.

IBF chief executive Pat Farrell said the figures showed that contraction in activity “continued to slow significantly”.

Frank Conway of the Irish Financial Review said the report could be interpreted as saying bank lending may be improving.

“Let’s not fall for it,” he said.

“Bank lending is suffering its worst state since the early 1970s, it is not improving, and the drought in lending looks set to continue for some time.”

He said that during the first six months of 2011, banks loaned €1.2bn, but in the first six months of this year they loaned €974m, a drop of almost 19%.

He said there has also been a significant fall in the number of mortgages granted. There were 5,855 drawn down in the first six months of this year compared to 6,810 in the corresponding period in 2011, a drop of 14%.

“It is likely that 2012 could prove to be the worst year for mortgage lending since 1971 [even falling short of the 2011 figures]. Perhaps a rush of first-time buyers seeking to take advantage of last-minute mortgage interest relief could reverse this.”

Changes in bankruptcy laws, rising arrears, and continued uncertainty in respect of projected losses placed all banks in an impossible situation, he said.

“Bank of Ireland and AIB cannot alone be expected to carry the full burden of the mortgage market on their shoulders.

“Other banks, including KBC Bank, National Irish Bank, and Ulster Bank must also play an active role.

“Those banks may not have required state funding but they have taken in significant deposits from Irish depositors and they must now pay their fair share in lending some of those funds back out into the market.”


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