Mortgage drawdowns grew 29 per cent in value in the second quarter compared with a year earlier, official figures show, marking a slowdown from the previous quarter as a chronic housing shortage stalled some willing buyers.
Irish mortgage lending collapsed after the property bubble burst in 2007. A recovery over the past three years has picked up pace in recent months thanks to the rapidly growing economy but is being held back in part by a widening gap between approvals and drawdowns. House buyers need formal mortgage approval in principle from a bank before they can make an offer.
Mortgage drawdowns in the second quarter grew to €1.65 billion, the Banking & Payments Federation said.
Dermot O’Leary, the chief economist at Goodbody Stockbrokers, said this meant that of the 35,000 mortgages approved in the 12 months to the end of June, 27,000 were drawn down, the biggest gap in percentage terms since the records began in 2011. “Both approvals and drawdowns are clearly rising but a mismatch is now opening up as approvals grow at a faster pace,” Mr O’Leary wrote in a note.
“The scarcity of new supply coming to the market, relative to demand, is likely to be the main reason for this trend. In this environment it is inevitable that price inflation has accelerated.”
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Irish residential property prices climbed by 11.9 per cent in the year to the end of May, the highest annual growth rate in two years, although they are still 29.5 per cent below the peak of the property boom a decade ago.
Analysts estimate that the mortgage market will grow to more than €7 billion of drawdowns this year from a low of €2.5 billion in 2011. This is still some way shy of the €13.5 billion Mr O’Leary said would represent a well-functioning market.
AIB said that the gap between approvals and drawdowns had been a feature since last year.
“People are clearly having difficulty in getting the units even though they have financing and that’s all back to the supply equation which is improving but there’s a significant overhang,” Mark Bourke, the AIB chief financial officer, said last week.
“It is problematic from a buyer’s point of view, particularly first-time buyers, where they have a very keen price point and there is only a very small number of new developments, especially in the urban areas.”
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In an interview with The Times last week, the Central Bank’s governor Philip Lane said that the Bank’s assessment of the housing market last year had also found that the bulk of mortgages were being given to high earners. “When you see the profile of those receiving mortgages in 2016 compared with 2015 there is a significant drift up in income,” he said.
“That is not helpful for affordability issues if we are saying that only people above a certain income are eligible for mortgages. It doesn’t help the general housing situation in the country.”