Bank review confirms slowdown in housing

Growth in mortgage lending slowed sharply in the first half of the year, despite a small rise in the figures for June, according to the latest figures from the Central Bank.

Outstanding residential mortgages increased by €8.6 billion in the first six months of 2007. However, this was more than 25 per cent lower than the increase in the first half of last year.

The monthly increase in residential mortgage borrowing was slightly higher in June than in May - inclusive of securitisations, the level of borrowing rose by €1.6 billion in June, bringing total outstanding residential mortgages to €131.8 billion.

But the Central Bank said the annual rate of increase in residential mortgages inclusive of securitisations continued its downward trend, declining by a percentage point to 19 per cent between May and June.

The figures from the Central Bank on mortgage lending came as Bank of Ireland's quarterly review confirmed a slowdown in the housing market.

Bank of Ireland's chief economist, Dan McLaughlin, has cut his house price growth forecast for the year. He predicts that prices are likely to remain flat for 2007.

"Our 3 per cent projection for 2007 now looks unlikely given the recent market trend, showing a fall of over 2 per cent in the three months to May, the first since mid-2001 when prices fell for five consecutive months," he said.

"Consequently we now project flat house prices in 2007, with a very modest 2 per cent gain in 2008, on the assumption that the rate cycle is seen to peak this year," he said.

"The building sector has started to respond to these signals and supply is adjusting and we now expect 75,000 house completions in 2007."

Dr McLaughlin said that demand for housing remains robust, led by an economy that is still showing strong employment growth and a 5 per cent rise in average earnings.

Overall, private sector credit rose by €5.3 billion, bringing the total to €342.8 billion.

However, the monthly rise would have been one of the largest ever, at close to €7 billion, had it not been for an asset-backed securitisation of residential mortgages, according to the Central Bank.

Despite the sizeable monthly rise, the adjusted annual rate of increase in private sector credit declined by over half a percentage point in June to 20.2 per cent, although this decline was at a slower pace than during the previous three months.

Non-mortgage credit accounted for most of the increase in private sector credit.

Even with this increase, the adjusted annual growth rate fell to 26.3 per cent in June, its lowest rate in two years.

Higher eurozone interest rates continue to impact on Irish private-sector credit growth, though it was still running at almost twice the euroland average at the end of June, according to Alan McQuaid of Bloxham Stockbrokers.

"The bottom line is that the prospect of at least one more rate hike this year will continue to push private-sector credit growth down between now and year-end but it will not be enough to bring it back into single digits or in line with the euroland average any time soon," Mr McQuaid said.