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Monday, June 29, 2015

Ireland: Mortgage lending slowdown continued in May; 12 month total at 1979 level

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Ireland: The 2015 slowdown in mortgage lending continued in May and the 12-month total of just over 30,000 for new and second hand houses compares with the level in 1979.

There were 2,461 mortgage approvals per month in the three months ending (3 month moving average) May 2015, of which 2,215 were for house purchase according to the Banking and Payments Federation.

The number of mortgage approvals rose by 20.6% compared with the three months ending May 2014 and increased by 4.6% compared with the three months ending April 2015. This is the 25 the consecutive month of year-on-year growth.

Re-mortgage/top-up continued to grow on a year-on-year basis.

Some €452m in mortgages was approved per month in the three months ending may 2015. The value of mortgage approvals rose by 26.3% year-on-year and by 2.5% when compared with the three months ending April 2015. The value of house purchase mortgage approvals grew by 22.7% year-on-year to €421m.

Conall Mac Coille, chief economist at Davy, commented:

Mortgage approvals grow by 12% in year to May 2015: New data from the Banking and Payments Federation, released this morning, suggest the slowdown in mortgage lending has continued into May. There were €447m mortgage approvals for house purchase in May, up from €391m in April. However, this means mortgage approvals are only up 12% on the year compared with 56% annual growth in 2014 and 60% in Q1 2015. There were 2,347 approvals in May, up 7.4% on the year. The average loan approval in May was €190,456, down from €195,658 in Q1.

Mortgage approvals growth slows from 60% expansion in Q1: In our recent report on the Irish housing market, we forecast that mortgage lending for house purchase would expand by 22.7% to €4.5bn in 2015, up from €3.7bn in 2014 and €2.4bn in 2013. This represented a slowdown from the 55% rise in 2014.

Year-to-date, mortgage approvals have equalled €2bn, up 36% from the €1.4bn of approvals in the same period of 2014. However, the first half of 2015 comprised two very different quarters: lending growth was exceptionally strong in Q1 with approvals up 60%; in contrast, growth has slowed markedly to 12% in Q2.

Potential borrowers may have brought forward approvals into early 2015, anticipating tighter credit conditions as the new Central Bank mortgage lending rules came into force. We estimate that 28% of mortgage loans in 2014 would have breached the limits, in excess of the 15% allowed to do so. That said, half these borrowers were first-time buyers close to a 90% Loan-to-Value (LTV), who would have faced only a slightly lower LTV ratio. It will probably be H2 2015 before the impact of the rules on actual lending becomes clear.

Overall, the sharp slowdown in mortgage approvals in Q2 2015 suggests that there are downside risks to our €4.5bn forecast for mortgage lending. However, it is not yet clear if the slowdown in Q2 is temporary after an exceptionally strong Q1. Residential property market transactions were still up 33.7% in April. That said, the full impact of the limits on high LTV and Loan-to-Income (LTI) mortgages on actual lending is not yet clear."

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