Figures spark ‘credit free for all’ fears

Mortgage drawdowns have surged by 49% as rising prices, coupled with a lack of new housing stock, spark fears of a fresh property bubble.

Figures from the Irish Banking Federation covering market movement between April and June show the value of drawdowns soared by 58% against the same period last year, to stand at €820m.

With financial experts predicting that rising house prices could lead to a loosening of post-crash lending controls, opposition TDs have warned a return to a “credit free-for-all” could spell trouble.

The drawdown on 4,803 mortgages in the three months to the end of June followed big increases in the first quarter of the year and shows a major upswing in the property market, but from a low base.

First-time buyers were responsible for 51% of activity in both quarters, but the country is still a long way from returning to pre-crash levels of transactions.

The figures prompted financial analysts at Goodbody to revise upwards their forecasts for the housing market.

“We were previously anticipating total gross mortgage lending growth of 35% in 2014, but these numbers are ahead of our expectations,” a spokesperson said.

“We are now forecasting loan growth of 50% in value terms, bringing the total market to €3.75bn for the year. While this will be the largest amount of mortgage lending since 2010, we believe this is just half of a ‘normal’ level of lending.”

The firm said the rising cost of housing stock is likely to lead to a relaxation of lending rules.

“Price growth should lead to some loosening of lending standards at the banks, though we have not seen any material signs thus far,” the spokesperson said.

Fianna Fáil finance spokesman Michael McGrath said lack of supply in Dublin and other parts of the country was the major cause for concern regarding a renewed property bubble, but strict lending controls needed to be retained.

“We do not want a return to a credit free for all. If the supply-side issue is not dealt with it could allow another boom,” Mr McGrath said.

The warning was echoed by Independent TD Stephen Donnelly.

“We do not want to start pouring credit on this situation,” he said.

Mr Donnelly expressed concern about Government indications that it intended to offer a State guarantee to first-time buyer deposits on 95% mortgages.

“The Government encouraging 95% mortgages — that’s the type of thing that leads to a bubble,” he added.

The figures also showed that buy-to-let investors saw a rise of 79% in drawdowns, but this was from a depressed base.

While house prices rose by 11% in the second quarter of 2014 compared with the previous year, the average size of loans went up by 6.5%, according to the federation.

A spokesman for Finance Minister Michael Noonan said: “The minister is always watching what’s happening in the mortgage market.”