Mortgage lending is continuing to accelerate, a trend likely to intensify the Central Bank's investigation into the lending practices of the financial institutions, writes Cliff Taylor, Economics Editor.
The latest figures from the Bank, published yesterday, show that annual growth in residential mortgages rose to 23.8 per cent in February from 23.2 per cent the previous month.
The Central Bank has recently written to the banks and building societies, warning them to keep within guidelines when extending mortgage loans. This is being followed up by on-site inspections at the financial institutions, when regulators will examine home-lending practices by examining specific files.
These special "themed" inspections in the mortgage area are in addition to normal regulatory work and will mainly focus on residential mortgages, but also cover the commercial market.
The Central Bank is concerned that borrowers do not over-extend themselves and become vulnerable if interest rates rise, or if one or both earners face a period out of work. Lending for residential mortgages rose by €708 million during February, bringing the annual growth in mortgage lending to its highest level since January 2001.
The rise in mortgage lending comes amid signs of an easing in the overall pace of credit growth, probably reflecting the slowdown in the economy. In February, the annual rate of credit growth slowed to 15.9 per cent, from 16.1 per cent in January. It was the first slowdown since September 2002.
The softness in other areas of borrowing illustrates that mortgage lending is a key area of growth for the financial institutions and the Central Bank's inspections will be aimed at ensuring they are not breaching lending guidelines in an attempt to build market share.
The Bank warned in its quarterly bulletin last week that the housing market may have "plateaued" and that a small fall in house prices was possible this year. Some private-sector economists have predicted sharper house price falls, with Goodbody stockbrokers warning last week that a " bubble" could be developing in the market. Meanwhile, those buying properties for investment are finding that rent levels - and the demand for rental properties - are both easing.
However, there is no consensus among economic forecasters in this area, with others believing that demographic trends and low interest rates will continue to support prices.
Excluding mortgage lending, the rate of credit growth from other sectors of the economy fell to 10.1 per cent from 10.6 per cent the previous month. Total lending to Irish residents stood at €143.2 billion at the end of the month.
Other borrowing sectors showing a rise were repurchase agreements, which rose by €359 million, and term/revolving loans, which increased by €148 million. However, there were declines of €148 million in overdrafts and €632 million in loans up to and including one year.
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