Mortgage lending growth to reinforce Bank concerns

Mortgage lending continued to grow strongly last month, a trend likely to reinforce Central Bank concerns over the financial position of home-buyers who borrow heavily to fund their purchase.

Monthly statistics released by the Bank yesterday show that mortgage lending saw annual growth of 21.2 per cent in October. This compares to a rise of 21.1 per cent in September, and is the highest increase to be noted since May last year.

Residential mortgage lending grew by €850 million in the year to October, an increase that excludes mortgages securitised by financial institutions.

The Bank contrasts the rise with overall growth in private-sector credit, which was unchanged at 13.5 per cent last month.

When mortgages are excluded from this, the annual growth in private-sector credit fell from 8.8 per cent in September to 7.9 per cent last month. "The figures point to some weakening in credit demand from other sectors of the domestic economy," the Bank said, noting a wide "divergence" between mortgage lending and other types of credit.

The Bank's governor, Mr John Hurley, wrote to lenders earlier this month warning them to stick to agreed guidelines when issuing mortgages. The Bank was worried that borrowers could fall into difficulty with repayments as a result of weakening economic conditions.

The monthly statistics do not offer an indication of the stimulus behind mortgage expansion, but anecdotal evidence suggests investors could be fuelling the surge.

Industry estimates show that "buy-to-let" mortgages currently account for about one-fifth of new lending business. It is possible that investors could have become even more active in advance of next week's Budget and its potential for limiting the financial advantages associated with property investment.

The figures show that overdrafts fell by €310 million in October, while loans with terms of one year or less dropped by €1.3 billion.

These declines where partly offset by an increase of almost €500 million in revolving loans, instruments usually originating with International Financial Services Centre (IFSC) companies.

Lending to all non-Government Irish residents contracted to €141 billion in October, down almost €700 million on the same month last year.

The decline was accompanied by a healthy rise in non-Government deposits held in the Republic's credit institutions.

Balances held in current accounts grew by €464 million, while deposits held in accounts with a maturity of up to three months increased by €300 million.

Those accounts with an agreed maturity of up to two years were €158 million higher.

Monies worth €124 million flowed into Special Savings Incentive Accounts over the year, bringing the total held in deposit SSIAs to €1.27 billion.