New data released today by the Banking and Payments Federation of Ireland (BPFI) shows that mortgage lending grew by 20% last year, driven by the new homes market.
The figures shows that mortgage drawdowns continued to grow at a solid pace in the fourth quarter of 2018. In volume terms, new lending grew by 17% year on year (yoy), with the value of lending growing by a similar amount.
In both cases, growth has remained relatively stable through the year, in contrast to the trend in mortgage approvals. For the full year, gross lending amounted to €8.7bn.
The level of new mortgage lending has more than trebled since 2013 (€2.5bn), but Goodbody Stockbrokers say it is still below what they believe is "normal" for the Irish mortgage market (c.€14bn). Goodbody are expecting growth of 16% yoy to c.€10bn.
Remortgaging was the fastest growing component of mortgage lending throughout 2018. In value terms, remortgaging grew by 49% yoy in Q4 2018, accounting for 15% of new lending. Looking solely at house purchase mortgages, First Time Buyers (FTBs) continue to be most important driver of growth. In Q4, the value of mortgage lending to FTBs grew by 14% yoy, the same rate of growth as in Q3. The value of lending to movers grew by 8% yoy in Q4 2018 (+6% yoy in Q3). BTL mortgage lending (+19% yoy), grew strongly, but remains a very low proportion of overall lending.
The increase in new housing supply is playing a major role in the growth in new lending, with lending on new homes growing by 31% yoy in 2018. Goodbody estimate that lending to the new homes sector accounted for 64% of the growth in lending for transaction purposes. Within this, FTBs are the most important buyer, such that FTBs of new homes accounted for c.50% of the growth in new lending last year.
New housing completions expected to grow to c.€4bn in the coming years (from €2.3bn in 2018). However, it is the low turnover in the second-hand stock that is having a larger role in relatively depressed level of lending in Ireland; in 2018, housing transactions amount to an estimated 2.2% of the housing stock, compared to 2.9% in the UK. Low levels of equity, tracker mortgages, lack of stock and the scarcity of bridging finance have all played a role in this trend.
According to Goodbody Stockbrokers, "Relatively weak mortgage approval trends brought some concerns that the macro-prudential rules were constraining growth in the market. While the market is approaching those leverage limits (particularly in Dublin), it appears to us that the changes to the rules at the start of 2018 triggered volatility in approval trends last year as banks tried to manage the stock of approvals that they would have had on their books under the previous rules. This is backed up by our conversations with the financial institutions over the past week."