Mortgage lending growth at 12-year low

Growth in mortgage lending hit a 12-year low at the end of last year as rising interest rates and uncertainty over house prices deterred potential purchasers, according to the latest figures from the Central Bank.

The private-sector lending figures show that outstanding mortgages rose by €16.6 billion over the course of the year, 30 per cent less than in 2006.

Annual growth in mortgage-lending in December was 13.4 per cent, compared with 24.2 per cent for the same month of 2006.

"Rising interest rates in the first half of 2007 and uncertainty over stamp duty reform may have tempered demand," the Central Bank said, describing demand for mortgages as "subdued".

The bank's figures show that lending to the building and property sectors also slowed notably over 2007.

Collectively, growth in all lending to businesses and consumers hit a five-year low at the end of last year after a record 2006.

The overall increase in private-sector lending at the end of the year was 17 per cent, down from 25.9 per cent in 2006.

Alan McQuaid, chief economist with Bloxham Stockbrokers, said demand for borrowing among consumers and businesses would continue to weaken over coming months as economic growth slowed.

"Furthermore, there is unlikely to be any good news on interest rates in the short term," Mr McQuaid added.

He expects a half-point cut in euro-zone rates, but not until the second half of the year.

Outside home loans, lending at the end of 2007 was 20.6 per cent higher than in December 2006. The comparable rate of increase a year earlier was more than 10 percentage points higher.

The Central Bank said holders of credit cards spent €1.3 billion in December, €81 million more than in the same month of 2006.

This was, however, mostly offset by "sizeable" repayments of €1.2 billion. At the end of the year, outstanding credit card debts were 9.3 per cent higher than 12 months previously.

The Central Bank's figures feature an "unusually large" increase in lending to non-bank IFSC companies last year, with some of this accounted for by loans to special purpose vehicles to finance offshore financial transactions.

The bank also pointed to evidence that some credit institutions "reorganised their funding structures as a result of the recent turbulence in credit markets".

In December, private-sector credit rose by €4.2 billion, but the Central Bank said the increase would have been more than €6 billion if it had not been for a securitisation of residential mortgages.