O.k. I lied, they care, but when it comes to new lending (and the secular trend that has already started in Irish lending rates) the underlying prices is of secondary concern as long at the loan (which is the banks asset) is performing.
There is a disconnect between the way that consumers think of property and the way that financial institutions think of it, the consumer thinks of price, the financial thinks of long term loan value. They are two different things, take the example below
Property price: €200,000 Loan (90%): €180,000 Term: 30yrs Rate: 3%
Total Cost of Credit: €273,199 Credit Cost: €93,199
The bank have a buffer in terms of the quality of the underlying asset, but that isn’t of concern, as long as the loan is performing it will be valued at €180,000 (or whatever the balance is), which is why the lenders are instead going for a different approach. Values have dropped to the point where they believe that we are somewhere near the bottom, not there yet …