Mortgage drawdowns surge in second quarter

Gap between approvals and drawdowns underlines scarcity of supply

Mortgage drawdowns continue to rise, indicating a resurgence in the property market, as the number of buyers seeking mortgage approval also continues to rise. However, a mismatch is emerging between those looking to buy and those able to find a property and secure a purchase, given the scarcity of property available for sale.

According to figures from the Banking & Payments Federation Ireland (BPFI) for the second quarter of the year, some 8,000 mortgages were drawn down, at a value of €1.65 billion. This represents a 17.6 per cent increase in loan volumes on the year, and an increase of 15.3 per cent on Q1. Values are up by 28.1 per cent on the year, and by 18.2 per cent on the quarter.

First-time buyers (FTBs), aided by the help-to-buy scheme, continue to drive the market, accounting for 50 per cent of the market by volume, and 48 per cent by value. Together, FTBs and mover-purchasers accounted for 85.3 per cent of the total value of mortgages drawn down.

Goodbody economist Dermot O’Leary is currently forecasting annual mortgage drawdowns of €7.4 billion but notes that a “normal” market amounts to about €13.5 billion, “but the achievement of this depends on an increase in new housing supply to 30,000 units”.



Activity in the switching market remains muted, however, indicating that Irish property owners have yet to embrace the incentives on offer such as cashbacks and contributions towards legal fees.

Figures from the BPFI show that while switching/remortgage loans continue to rise, up by 37 per cent in volume and 43 per cent in value on the year, they remain at muted levels, of 675 loans over the three months worth some €154 million. This represents less than 10 per cent of overall market activity.

Yesterday, in an effort to boost the numbers switching, the Central Bank proposed the introduction of statutory requirements. Mr O'Leary said that policy efforts such as this is likely to lead to further growth.

The BPFI also revealed a strong growth in mortgage approvals, with an increasing number of people seeking to get approval before searching for a home. Figures for June show that the number of mortgages approved rose by 27.7 per cent year on year, and by 4.7 per cent month on month, with a total of 4,318 mortgages approved in the month .

However, Mr O’Leary warned that not all of these putative home buyers will go ahead with a purchase.

“There are some early signs that a deficit of available homes may be holding back the move from mortgage approval to drawdown,” he said.

Indeed Mr O’Leary has identified a mismatch between approvals and drawdowns.

“Both are clearly rising, but a mismatch is now opening up as approvals grow at a faster pace,” he said, noting that in the 12 months to June 2017 there were 35,224 mortgage approvals for transaction purposes, compared with 27,124 mortgages drawn down.

“In percentage terms, this is the biggest gap since the data began in 2011. The scarcity of new supply coming to the market, relative to demand, is likely to be the main reason for this trend. In this environment it is inevitable that price inflation has accelerated,” he added.

Fiona Reddan

Fiona Reddan

Fiona Reddan is a writer specialising in personal finance and is the Home & Design Editor of The Irish Times