Home loans show slowest growth rate since 1992

MORTGAGE LENDING grew more slowly in March than at any time in almost 16 years due to rising borrowing costs and falling property prices, according to the Central Bank.

Home loans rose 11.6 per cent from a year earlier, the slowest growth rate since May 1992 - and down from 12.3 per cent in February.

The figures confirm the slowdown in the property and mortgage lending market since it peaked early last year.

The Central Bank said mortgage lending grew at its highest level in March 2007. It said the first three months of this year were the weakest start to a year for mortgages since 2003.

Total borrowing rose 17.1 per cent - or by €5.3 billion - in March, ending eight consecutive months of decline in the annual growth rate. This brought outstanding private debt to €384.3 billion.

The March increase equalled the annual growth rate last November. The bank said the March increase included "an exceptional large increase" in one area of private debt - the holdings of securities, where there was a small change in March 2007.

The bank said that after two very weak months, the increase in residential mortgages rose back above €1 billion in March.

The decline in the growth of credit card debt since September halted in March. Outstanding credit card debt rose by only €10.4 million over the month.

Non-mortgage debt growth rose to 20.8 per cent from 18.9 per cent in February, while the amount borrowed by financial institutions from the European Central Bank (ECB) rose €6.1 billion in March.

Bloxham chief economist Alan McQuaid predicted further deterioration in the mortgage growth rate through 2008 as lenders become less willing to offer mortgages and continue to tighten borrowing rules due to higher funding costs.

"You will get more subdued lending and borrowing than during the tiger years," he said.

Mr McQuaid said he expected the mortgage growth rate to fall to single-digits by the end of the year. He has cut his economic growth forecast for 2008 from 2.3 per cent to 1.8 per cent since last week.

"It is quite clear that consumers are retrenching. They are obviously concerned about their jobs and the financial turmoil," he said.

Several financial institutions have increased interest rates and restricted lending on mortgages, passing on to customers the rising cost of wholesale money in the volatile financial markets.

Yesterday, Haven Mortgages, the subsidiary of EBS Building Society which sells home loans through brokers, increased its standard variable rate by 0.11 per cent to 5.45 per cent and withdrew its one and 10-year fixed rates. It also raised tracker rates and two, three and five-year fixed rates.

Three-month wholesale money, the benchmark for commercial lending across Europe, remained unchanged yesterday at 4.86 per cent, its highest level since December, or 0.86 per cent above the ECB benchmark rate. This compares with a margin of 0.1-2 per cent before the credit crunch.

Some lenders have increased standard variable rates, with one lender, First Active, raising its rate to 5.89 per cent from today, even though the ECB has left its base rate at 4 per cent since June 2007.