Lending to the construction sector slowed to its lowest level in four years in September, while property lending growth is at its lowest level in five years, according to the latest statistics from the Central Bank, writes Simon Carswell, Finance Correspondent.

The figures show the continued decline in the home loan market and the slowdown in construction and property.

They also show that Ireland is now the most indebted country in Europe, when measuring private lending against both GDP and GNP.

The growth in the rate of lending to the construction sector declined to 26.6 per cent in September from a high of 61.5 per cent a year earlier.

Not since the third quarter of 2003 has the growth in construction and property lending been as slow. The annual rate of increase has fallen consecutively over the last 15 months.

The growth in property lending slowed to 34.8 per cent, its lowest level since 2002, though the Central Bank said this growth level still remained strong.

Private sector lending grew by 20.3 per cent - or €63.1 billion - to €374 billion in September 2007, compared with a year earlier. However, property lending now accounts for 82 per cent of this increase, compared with 66 per cent of the overall growth in private sector lending in June 2007.

The growth in home loans, which accounted for 85 per cent of all personal lending in September 2007, has slowed to 16.1 per cent in September, compared with 26.6 per cent a year earlier.

IIB Bank chief economist Austin Hughes said the figures showed there has been "a steady slowdown" rather than "sharp tumble" as the economy responds to higher interest rates and "the loss of sentiment" in the building and property sectors.

"There are no signs of the disjoint in the economy that people seem to be suggesting. It is a measured slowdown which means the economy is moving to a more modest growth rate."

Just over 23.1 per cent of all residential mortgages are for buy-to-let properties - the same proportion as last year. However, the growth rate in lending for buy-to-let properties has slowed dramatically since last year.

The Central Bank says that despite high rents, the prospect of limited house price increases "may have deterred buy-to-let investors from investing in the housing market", though there was a slight recovery in the quarterly growth rate in the three months to the end of September.

The growth rate in lending to the manufacturing sector has slowed to 22.9 per cent in September from almost 30 per cent in June, having risen from an average of 11 per cent in 2006.

Ireland has been the most indebted country in Europe since June 2005, comparing the ratio of personal and private sector lending to GNP with other countries.

In September, Ireland for the first time surpassed the Netherlands as the most indebted country in Europe, using the GDP measure.