Brokers blame low lending for 'over-shoot' on property

Tue, May 1, 2012, 01:00

RESTRICTIVE LENDING is one of the main causes of over-correction in the house price market, the Professional Insurance Brokers Association has said.

Speaking after the Central Bank said Irish house prices were undervalued by up to 26 per cent, Rachel Doyle, chief operations officer with the association, said half its 870 members believed the demand for mortgages was growing.

But they identified an unwillingness to lend as the greatest impediment to people wishing to take out mortgages. Restrictive criteria, including an unwillingness to lend to people employed on contract, even when the contract was rolling and likely to continue, was contributing to difficulties, she said.

“We wouldn’t be shocked by the Central Bank findings, but would be worried,” she added.

“We hope the Central Bank and Government will look at the report and intervene to bring back normal, prudent lending.”

Felix O’Regan, spokesman for the Irish Banking Federation, said prudent lending was being practised by the banks. The reduction in borrowing could be attributed to borrower sentiment and prudence on both sides, he said.

In recent months, members had noted the level of mortgage drawdowns was “flagging the level of approvals”, so there was “a continuance to be cautious on the part of borrowers, even those approved”.

Asked whether the pendulum had swung too far in the direction of lender prudence, Mr O’Regan said there was always anecdotal evidence that could be pointed to, but “in the overall scheme of things we don’t see that as the case”.

Asked whether banks were failing to lend to contract employees, he said lenders were trying to accommodate the move toward increased contract working, but security of employment had to be considered.

Also reacting to the house price report, chairman of the Consumers’ Association of Ireland, Michael Kilcoyne, said he would take anything the Central Bank had to say “with a pinch of salt”. Banking practices had caused houses to be overvalued in the first place, he said.

In real terms, people’s incomes had dropped due to wage freezes and cuts, and increases in indirect taxation including property tax, VAT and septic tank charges.

“I don’t understand how they have arrived at these conclusions, and I don’t have a lot of faith in what they have to say,” he said.

Angela Keegan, managing director of Irish Times-owned property website, said the report had credibility. To return to a normal market there had to be an increase in consumer confidence and an increase in lending.

Only 11,000 mortgages were drawn down last year, while there was 110,000 in 2006. Both were “crackerjack” she said. A normal market should have 30,000 to 40,000 mortgages a year.