Private sector borrowing is rising at the fastest rate in over six years, the Central Bank said yesterday, despite repeated calls for moderation.
The annual growth rate in private sector credit hit 30.3 per cent in June, up from 29.8 per cent in May, and the strongest increase since March 2000.
The figures were released as the bank warned in its quarterly bulletin that accelerating house prices and rapidly rising levels of indebtedness were heightening the vulnerability of the economy to interest rate increases and escalating oil prices.
While growth prospects remain positive, the economy is still exposed to external shocks, the bank said.
Separate data published yesterday showed that the property market continues to surge, with Permanent TSB and the ESRI reporting that prices at the end of June were 15.2 per cent ahead of the levels a year earlier.
And Bank of Ireland chief economist Dr Dan McLaughlin warned that the boom would see the price of the average home in the capital topping half a million euro by the end of the year.
The bank yesterday predicted the market would expand 12 per cent in 2006. This would put the average nationwide price of a house at about €395,000 and push Dublin prices to an average of €532,000, Bank of Ireland said. At the end of 2005, national house prices were €350,000 and prices in the capital averaged €475,000.
Three increases in interest rates in recent months have yet to impact on the rising trend of Irish house prices. The European Central Bank is widely expected to raise rates by another quarter percentage point on Thursday. This will add a further €34 to the monthly repayments of home-owners, with the cost of a typical mortgage of €250,000 over 25 years set to rise to €1,333.
Borrowers on a typical tracker rate of 3.85 per cent have already seen €100 added to monthly mortgage costs as interest rates rose by three-quarters of a percentage point since December.
Recent strong growth in residential mortgage lending continued in June, although the annual growth rate eased slightly, falling to 29.1 per cent in June, down from 29.5 per cent in May.
For the second month in a row, however, non-mortgage credit had a higher annual growth rate than mortgage credit, rising to 32.6 per cent in June, up from 29.7 per cent in May.
Private sector credit has now increased by an average of €5 billion each month during the first half of 2006. The June increase was €5.8 billion, bringing private sector borrowings to €289 billion.
Term loans rose by €4 billion in June, the largest increase in a year while outstanding credit card debt was 18 per cent higher than a year earlier.
IIB chief economist Austin Hughes said credit card debt, though small in the context of overall borrowing, was worth watching for any indication of emerging financial difficulties for consumers.