Fall off in Residential mortgage borrowing, precursor to a property crash?

Latest figures from the Central Bank show that residential mortgage borrowing in the first half of the year has slowed by up to 25%, compared with the previous year. Residential mortgages increased by €8.6 billion in the 6 month period to June, which is over 25% lower than for the same period in 2006. This is indicative of the dampened confidence of potential buyers and displays their current reluctance to engage in capital investment. Many investors are wary about taking on loans such as mortgages, given the relative uncertainty of the current climate. In total, the monthly increase in mortgage borrowing (inclusive of securitisations) grew by over €1.6 billion.

There was a considerable increase in the level of outstanding private sector credit in the period Jan-June. This brought the annual rate of increase in private sector credit to just over 20%. There are numerous components affecting this. Residential mortgage lending (not inclusive of securitisations) was seen to increase by €307 million. Term loans increased on average by €2.7 billion. Loans taken out for periods up to and including one year increased by €1.3 billion. Overdrafts increased by €341 million.

Demand for non-mortgage credit remained buoyant in June and is responsible for a large part of the increase in private sector credit. The adjusted annual growth rate for non-mortgage borrowing dropped to 26%, which is the lowest rate it has reached since 2005.

Housing Minister Batt O’Keefe has said that the housing market is becoming “more balanced” with regard to house prices and mortgages. Despite his positive attitude, the ECB announcement last week that another interest rate hike is set to occur within the next month, is not likely to excite demand for mortgages in the near future.

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