New mortgage rules have taken ‘froth’ out of property prices

Regulator says it’s still too early to judge new rules as mortgage lending falls by most since 2011

Early evidence suggests that the Central Bank’s new lending restrictions have taken the “froth” out of property prices, an economist with the regulator said on Tuesday, as new figures show a further decline in mortgage lending.

Speaking at a Sunday Business Post property conference in Dublin, Gabriel Fagan, economist with the Central Bank, said that tentative evidence suggests that the new measures, which restrict income multiples and loan to values for borrowers, have had a positive effect of removing "froth" from property prices, particularly in the Dublin residential market".

“This is confirmed by the slowdown in price dynamics and evidence from the Central Bank survey of the house price expectations of property market professionals,” he said.

However, he added that it is still “far too early to judge the effectiveness of the measures taken last January”, adding that it will be “ mid 2016 at the earliest before we can make an initial assessment of the impact and effectiveness of the measures.”


Mortgage lending

Mr Fagan’s comments came on a day when new figures showed that the number of mortgages approved in the three months ending October fell by the most since 2011.

According to figures from the Banking and Payments Federation of Ireland (BPFI), mortgage lending fell by 2 per cent in the year to the three months ending October 2015, the first time that mortgage approvals have fallen on a year-on-year basis since April 2013.

There were 2,531 mortgages approved, of which 2,195 were for house purchase. When looked at by value, the decline is 1.3 per cent on the year, and by 6.7 per cent on a three month moving average basis.

Most significant perhaps, is the figure that shows that the number of mortgage approvals for property purchase fell by 7.5 per cent year-on-year - the largest decline since the series began in 2011.The average mortgage approval value in the three months ending October 2015 was € 181,351, up 0.7 per cent year-on-year.

John Cronin, financials analyst with Investec, says that the data shows that the Central Bank's new lending rules are starting to have a "marked effect" on housing transaction activity, but he cautions against over-interpreting the figures. Mortgage lending took off in October 2014 following the publication of the Central Bank's consultation paper on the issue, which may over-state the comparison, while he also notes that a number of banks have been adopting a very reluctant approach to mortgage lending since the beginning of Q4 in order to avoid any breach of the Central Bank's rules.

“These data show there are real headwinds heading into 2016 for the Irish banks in terms of achieving mortgage loan growth ambitions,” he said, noting that the full impact of the new lending rules may not become fully apparent until the first quarter of 2016.

Meanwhile Goodbody Stockbrokers has cut its full-year lending forecast for 2015 to €4.5 billion, down from €5 billion, far below a “normal” market level of €8 billion a year.

Central Bank

The figures follow similar indicators from the Central Bank. In its monthly report on lending and deposits published yesterday, it showed that lending to Irish households fell again in October, as deposits rose sharply. During the month, loan repayments exceeded drawdowns by € 253 million, as mortgage lending fell by € 138 million, down by 2.4 per cent on an annual basis.

Fiona Reddan

Fiona Reddan

Fiona Reddan is a writer specialising in personal finance and is the Home & Design Editor of The Irish Times