Central Bank rules hit as mortgage approvals slump by 8%

Mortgage approvals slumped by 8 per cent in the year to November, amid calls for a loosening of the Central Bank’s lending restrictions. The slump would have been more pronounced but for the impact of home owners switching their mortgages to avail of lower mortgage rates.

According to figures from the Banking & Payments Federation Ireland (BPFI),in the three months ending November 2015, some 2,531 mortgages were approved per month, on average, down by 8 per cent, year-on-year with the vast majority, 86 per cent, of these for house purchase.

The value of mortgage approvals fell by 6.6 per cent in the same period, down to € 469 million.

On a month-to-month basis, the number of mortgages approved increased by 0.4 per cent, while the value rose by 2.2 per cent. The average mortgage for house purchase rose by 1.8 per cent year-on-year to € 191,371.

Significantly, the number of mortgages taken out for house purchases slid by 14 per cent on a numbers basis, and 12.6 per cent by value. This is the largest decline since the series began in 2011 and the second lowest level of approvals for property purchase since May 2014, according to John Cronin, analyst with Investec Ireland.

The decline was offset by a swing upwards in those remortgaging or topping up their mortgages. According to the figures, the number of re-mortgages increased by 63.6 per cent year on year, and by 5.1 per cent on a three month moving average basis, suggesting that homeowners are taking advantage of the introduction of lower mortgage rates for new customers.

Mr Cronin said that the data suggests that the Central Bank’s macroprudential regulations , which put limits on the amount people can borrow, are having a negative impact on mortgage volumes, although he noted that Q4 of 2014 saw a “ significant uptick” in approvals activity ahead of the new rules.

“As well as this, we understand that a number of banks have been adopting a very reluctant approach to mortgage lending since the beginning of Q4 in order to avoid any breach of the Central Bank’s rules,” he said, adding that he expects the impact of the regulations “to bed down and normalise over the course of 2016”.

Responding to the figures Rachel Doyle, chief operations officer at broker group PIBA, said that a tapering of the Central Bank rules is now "more than justified."

“The impact on young urban dwellers is not just disproportionate; the rules will impact on their financial futures in a big way, particularly if prices and interest rates rise,” she said, suggesting that the Central Bank should “immediately” reduce the 20 per centc deposit requirement to 10 per cent with the maximum loan amount being increased from 3.5 to 4.5 times income.

“This would give a much needed boost to first-time buyers who are now forced into the rental market and making payments that could instead be contributing to their first mortgage,” she said.

Conall Mac Coille, economist with Davy Stockbrokers, said that the figures show that the annual growth in mortgage approvals has fallen from more than 60 per cent in the first quarter of 2015, into negative territory in the second half of 2015. However, Mr Mac Coille expects that new mortgage lending of some €4.2 billion for 2015 will still be met.