Loan enquiries fall as households move to conserve cash

Enquiries from consumers and businesses seeking loans fell by 20 per cent in March compared to the previous month, according to new Central Bank data which lays bare the extent of the troubles facing lenders.

Coinciding with the increase in confirmed cases of Covid-19, and the introduction of containment measures, credit inquiries declined in March. By mid-April enquiries had fallen further, averaging about 2,000 per day compared with about 5,800 per day in February.

The Central Bank has published data based on lender enquiries on the Central Credit Register. Movements in the data provide early insights into the profile of new loan demand as the economic climate evolves, the Central Bank said, noting that the data has some limitations.

Mortgage applications

Enquiries related to new mortgage applications for individuals fell by almost a fifth between February and March. The Central Bank said that if such trends continue, “there may be implications for demand in the housing market in the coming months”. Nevertheless, other data indicates that sales at an advanced stage may be proceeding.

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Personal loan enquiries, which accounted for half of all enquiries in March, fell by about 25 per cent over the month as households avoided taking on new debt. There were fewer applications for new credit cards and car finance products during the month. “A precautionary pullback from non-essentials could explain these trends,” the regulator said.

Some growth came in enquiries about business overdrafts. Following school closures on March 12th, the bank saw enquiries related to personal overdrafts rise, but they have since reduced.

Company financing

In stark contrast to consumers, company financing needs rose by one-fifth in March, mainly owing to overdraft requests. By mid-April, that had fallen back.

Business overdraft enquiries increased significantly from mid-March following the initial Government announcement, and peaked in the final week of March with a 280 per cent increase compared to the final week of February.

Lenders made enquiries on an average of 185 overdrafts each day during the final week of March, markedly up on an average of 60 each day during the last week of February, the Central Bank said.

Loan applications for other forms of business credit such as term loans, leasing arrangements and hire purchase agreements fell in the week immediately following the closures of schools, childcare facilities and pubs.

Fixed-rate mortgages

Separate data from the Central Bank, published on Friday, showed that three-quarters of Irish home buyers are now opting for fixed-rate mortgages while the average rate charged on these contracts was still well above the euro average.

The bank’s latest retail interest rate data showed that in the three months to March, 74 per cent of all new mortgage loans taken out in the State were on a fixed interest rate.

The ultra-low interest rate environment internationally has resulted in some lenders pricing fixed-rate loans lower than variable ones. Fixed rates are usually higher than variable rates, the premium reflecting the certainty the borrower is guaranteed.

However, some lenders are betting that variable rates will eventually fall even further in the future.