New mortgage lending to overtake repayments for first time since crisis

New mortgage lending will overtake repayments on home loans next year in the Republic for the first time since the outset of the financial crisis, returning the market to growth even in the face of easing house price growth, low levels of building and concerns over Brexit, according to Davy.

Mortgage lending is on track to expand by 11 per cent this year to €9.6 billion and a further 12.5 per cent in 2020 to €10.8 billion, according to Davy analysts Stephen Lyons and Diarmaid Sheridan in a report published on Monday. Mortgage repayments are expected to amount to €8.8 billion next year.

The total stock of mortgages in the State will reach a turning point next year and expand by 0.1 per cent to €93.1 billion as the level of repayments is finally overtaken by fresh home loans taken on by borrowers.

Infancy

“The market recovery remains in its infancy,” said the analysts. “The number of mortgage loans for house purchases (32,000) and housing completions (18,000) in 2018 – excluding the recent past – were still at their lowest levels since 1991 and 1989, respectively.”

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The Irish mortgage lending peaked in 2006 when borrowers took in almost an additional €40 billion of fresh debt. The overall stock of home loans has shrunk by almost 38 per cent from a high of €149 billion in 2009 as households focused on paying down debt and banks wrote off unsustainable loans following the property crash.

The 2016 national census showed that the size of average households grew for the first time since 1971 due to an increase in so-called crammer households, where occupants are unrelated, and working adults remaining at home with their payments as housebuilding has failed to keep pace with population growth.

Demand

The consensus view among economists is that there is demand for 35,000 homes to be constructed a year for the foreseeable future. The Construction Industry Federation forecasts that 23,000 units will delivered this year. Rental costs have also soared in recent years.

The slow rate at which building has recovered partly reflects the stressed financial position of the wider sector following the crash, with many companies still resolving their relationship with Nama, and a tight market for construction workers as many workers moved abroad during the downturn, according to Davy.

“The legacy of Ireland’s deep financial crisis explains why housing and mortgage market activity remains depressed,” said the Davy analysts. “Many Irish households still lack a cushion of housing equity, making them less likely to move home.”