Growth in mortgage lending falls back

Growth in residential mortgage lending has eased to its lowest rate in almost 5½ years, according to credit figures released by the Central Bank yesterday.

However, the rate of increase in credit card indebtedness is creeping up again following a sharp dip in May, when consumers used maturing SSIA funds to pay off debts.

Although the level of outstanding residential mortgages in the State expanded by €1.6 billion to €133.4 billion in July, the annual growth rate fell to 17.9 per cent. This compares to 27.6 per cent in July 2006, and is the lowest growth rate recorded since February 2002.

The average month-on-month increase in mortgage levels in the year to July was €1.4 billion. The Central Bank estimates that if this rate of lending continues for the remainder of 2007, the total growth rate for the year will be about 14 per cent.

Meanwhile, the slowdown evident in the non-mortgage lending sector over the last year has continued, with the growth rate dropping from 26.3 per cent in June to 25.9 per cent in July.

Credit card debt rose by a relatively modest 11.7 per cent following the SSIA-related blip two months earlier.

Demand for term and revolving loans was strong, growing by €2.6 billion over the month of July. However, overdrafts dropped by €357 million.

Private-sector credit - which measures total lending by credit institutions in the Republic to non-Government entities (and incorporates both mortgage and non-mortgage lending) - stabilised at an annual growth rate of 20.3 per cent.

Growth in private-sector credit has been slowing since June last year, when it broke the 30 per cent mark for the first time since March 2000.

A sectoral breakdown also published by the Central Bank yesterday indicated that growth in lending to the real estate sector eased to the lowest rate in over two years in June.

The growth rate for the construction sector also slowed considerably compared with June 2006.

Dr Dan McLaughlin, chief economist at Bank of Ireland, said he expected credit growth to slow further this year, but stressed that "the [Central Bank] figures would suggest that clearly the Irish economy is not falling off a cliff".

He added that the reacceleration in credit card spending indicated that consumers were spending "with a vengeance" in July.

Alan McQuaid, chief economist at Bloxham stockbrokers, said yesterday that private-sector growth was dependent on European Central Bank interest rates.

Even if the ECB decided to hold off on a rate rise at its meeting next Thursday, he expected that policy tightening would still occur during the fourth quarter.

"The bottom line is that higher rates will continue to affect private-sector credit between now and year-end, pushing growth rates down further, but still keeping them well above the euro-zone average."