Mortgage demand increases ahead of new lending curbs

Demand for mortgage loans increased in the final quarter of last year ahead of expected new stricter lending rules.

According to the Central Bank bank's latest quarterly lending survey, the potential introduction of stricter loan-to-value criteria resulted in "an acceleration of demand".

However, the survey, which examines credit market conditions for households and businesses, the strength of the reported increase in demand was lower than the record level reported in the third quarter.

The Central Bank is expected to introduce new lending restrictions this year, which could require home buyers to have a deposit of 20 per cent of the property’s purchase price.

Traditionally, Irish house buyers have been able to secure 90 per cent loans, albeit in the bubble years borrowers were regularly given 100 per cent.

Overall, the bank’s survey found credit standards on loans to households for house purchases remained unchanged during the final quarter of last year.

“It was reported that some terms and conditions on loans for house purchases had eased marginally, with the margin on average and riskier mortgages both reported as having fallen,” the bank said.

Credit standards are, however, expected to tighten on loans for house purchases during the first quarter of this year, with a decline in mortgage demand also anticipated.

The report fed into a wider survey of European lending conditions, which indicated that one in four banks across the euro zone saw a rise in home loan demand towards the end of last year and almost as many expect the trend to continue.

As consumers bet on rising house prices and banks loosen lending standards, demand for home loans has shot up, the European Central Bank's survey showed. The study found, a trend that will fuel concerns in Germany and elsewhere that cheap money could be blowing up a property bubble. "Housing market prospects and to a lesser extent consumer confidence were again the most important factors driving the increased demand for housing loans," the report on bank lending said. Demand for mortgages was strong in the Netherlands and Germany, two countries considered a safe haven in a struggling euro zone and where borrowing is easy, but also in heavily indebted Italy.

In France, where the economy is in the doldrums, there was little change. Germany's Bundesbank has been keeping close tabs on rising property prices, which have shot up by almost a quarter over the past four years in the country's most prosperous cities.

This has taken the cost of some upmarket two-bedroom flats in Frankfurt beyond €1 million euros, price tags that have shocked ordinary Germans who are typically used to property prices rising at a very slow pace.

Some critics believe that an expected move by the European Central bank to print fresh money to buy government bonds, coupled with long-standing borrowing costs at record lows, could fuel further rises. "One factor driving demand is that property is a good alternative to keeping money in a savings account," said Thorsten Lange, a property expert with DZ Bank. "The interest rates will stay cheap and the property demand will stay. But one has to be cautious in case property prices would brake."

Additional reporting by Reuters