According to Davy Research there has been a €15 billion fall in the level of money borrowed since it peaked at €174bn in early 2009.
This sharp fall reflects mounting pressure on households to meet existing debt obligations and serious concerns that the bailout of the economy and the upcoming budget will reduce incomes further.
October statistics from the Central Bank also confirm lending to householders has fallen by 4.9% in the year, with business lending also down.
The Central Bank said the net flows of household loans has been “negative every month so far in 2010, totalling minus €7bn up to the end of October, compared with a net flow of minus €1.7bn over the same period in 2009”.
Stephen Lyons of Davy said the substantial fall in debt does not reflect higher debt repayments but demonstrates the “limited appetite for new credit”.
The reality, he suggested, is that householders are paying back less of their mortgages at this stage due to lower incomes and loss of jobs in many cases.
That situation is likely to get worse, he warned, pointing to the fact that roughly 50% of the country’s mortgages are trackers and when interest rates start to rise borrowers will face huge pressure as they struggle to meet the higher repayments.
On current evidence, Mr Lyons suggested the repayment rate on mortgage balances had fallen to just 6% from 8%, quarter on quarter.
“It would be wrong to conclude on that basis that the fall in the level of household debt was due to higher debt repayments,” he said.
Mr Lyons also said that comparison with IBF/PwC mortgage lending figures for the third quarter, also out yesterday, and the Central Bank’s mortgage balances, suggest the repayment rate on the national mortgage book was down.
The reluctance to borrow was also starkly highlighted by a 40% fall in the demand for mortgages in the third quarter.
The Irish Mortgage Corporation described the fall as “a mortgage wipeout”.
The only increase in demand for home loans was in the first-time buyer category which rose 4% quarter on quarter. The buy-to-let segment of the market has been a huge casualty and declined by 64% year on year.
Bloxham economist Alan McQuaid said that “until the banking sector crisis is fully resolved and things improve on the labour market front then the supply/demand for credit will remain subdued in our view”.