Loan growth rate slows, but demand is high

The annual rate of growth in borrowing slowed slightly in July, though demand remained high, particularly for non-mortgage borrowing, figures released yesterday by the Central Bank show.

While the growth in residential mortgage lending slowed to €1.8 billion in July from the record €2.1 billion increase in the prior month, the gains over the past two months remain the highest on record. The annual rate of growth in mortgage credit slipped to 25.3 per cent in July from 26.6 per cent in June.

Meanwhile, growth in non-mortgage lending, which includes car loans, credit card debt and borrowing by companies, exceeded mortgage lending for the first time since October 2000. That is also the last month to see such significant growth in the non-mortgage market.

The annual growth rate for non-mortgage lending strengthened to 25.8 per cent in July from 25.2 per cent in June, yesterday's figures show. About 70 per cent of that increase can be attributed to non-financial corporations and households, the bank said.

Overall, the annual rate of growth for private sector credit was 26.7 per cent in July, compared with 26.9 per cent in June.

Austin Hughes, chief economist at IIB Bank, said the strong growth in non-mortgage borrowing could probably be attributed in part to various types of property investment not financed through mortgages. This could be people taking out personal loans to pay for deposits or to furnish their propery. He also said higher borrowing may be fuelled by a decrease in spending power brought about by higher energy costs.

While consumers are taking advantage of the positive sentiment created by the ongoing low interest rates - they have remained at 2 per cent for the past two-and-a-half years - and high employment to borrow money, some economists, and the Central Bank, have expressed concern about the high levels of debt that people are taking on.

Alan McQuaid, an economist at Bloxham stockbrokers in Dublin, urged consumers to be careful when borrowing for items other than homes.

"With a house you have something to show for it at the end, but with credit card debt taken on for a holiday or to buy a new item of clothing this can be dangerous," he said. Still, Mr McQuaid said he expects demand for borrowing to remain high for the foreseeable future.