Figures show mortgage lending 'subdued'

Growth in mortgage lending fell to the lowest pace in nearly 14 years last month, as weaknesses in the housing market continued.

The latest figures from the Central Bank also show that the slower growth in lending to the property and construction sectors recorded last year continued in January.

The annual rate of increase in mortgages fell from 13.4 per cent to 12.9 per cent last month. This compared to an annual rise of almost 24 per cent at the start of 2007.

The Central Bank said that, while mortgage lending is usually weak in January, last month was "very subdued". The monthly increase amounted to just €824 million, marking it the poorest start to the year in the sector since 2003.

"The monthly increase in outstanding residential mortgages has not been below €1 billion since January 2005," the bank said in a statement accompanying the figures.

Alan McQuaid, chief economist at Bloxham Stockbrokers, expects to see further declines in lending growth over coming months, or at least until the European Central Bank cuts interest rates and creates a fillip in the housing market.

He acknowledged, however, that this "looks some way off".

The most recent data on house prices from the ESRI and IIB Bank showed that house prices declined by 7.3 per cent, on average, last year.

Lending to consumers and businesses as a whole was generally weak in January, with overall private-sector credit increasing by just €2.2 billion, or 0.6 per cent, month on month.

The bank said credit only increased by this little in 2006 and 2007, when a new securitisation had removed mortgages from lenders' balance sheets. "This, however, does not explain the low monthly increase in January."

Last month's 16.8 per cent annual increase in private-sector credit was the lowest annual rate in more than four years, having fallen from 17 per cent in December.

Excluding mortgage lending, the annual increase was 20.6 per cent, which represented fairly stable growth. The bank noted, however, that the slowing lending to property and construction companies recorded in 2007 had fed into a "small monthly increase" in the sector last month.

Outstanding credit card debt was lower in January as new spending declined. At 8.9 per cent, the annual increase was less than half that recorded a year earlier.

Lynsey Clemenger, an economist with Ulster Bank, said the large, SSIA-related repayments made to credit card accounts last year would not be evident over coming months.

"In 2008, the source of continued low rates of increase in credit card debt is more likely to be weakness in consumer spending," Ms Clemenger noted. Her comments chime with the most up-to-date consumer sentiment figures, which showed that confidence slipped back last month as job losses mounted.