Mortgage drawdown trends remain strong

Updated / Friday, 10 Nov 2017 12:17

Economist Dermot O'Leary tells Adam Maguire that according to Goodbody figures, 6,500 new units were built in the first nine months of 2017

Figures from the Central Statistics Office this week showed property prices rose by almost 13% in the year to September as the pace of growth continues to rise. Meanwhile, figures from the Banking and Payments Federation of Ireland yesterday showed that mortgage approvals continue to rise, as does the average value of the loan that people are getting. The BPFI figures showed that mortgage approvals were up more than 9% year on year and the value of those approvals rose by 19% as demand for housing continues to increase. 

Dermot O'Leary, chief economist with Goodbody, said this upward trend has been evident all year, with price growth accelerating for eight months in row as mortgage lending drawdowns saw an approvals' boom at the start of the year. Mr O'Leary said that two issues will become apparent over the next number of quarters. The first is the issue with the Central Bank rules - the economist said the market is seeing an increase in the mortgage size and an increasing number of borrowers needing exemptions outside of the Central Bank's rules. The second issue is the long-standing problem of lack of supply in the system overall, which includes second hand homes - and more importantly - new builds. He said the number of new homes remain substantially below where they need to be in order to allow a properly functioning market. 


Department of Housing figures rely on ESB connections when calculating how many new houses are built, but Goodbody use a different formula and rely on the Building Energy Ratings certificate. Based on Building Energy Ratings, 5,377 houses were completed in 2016. This is only about one-third (14,932) of the number indicated from electricity connections. Using those BER figures, Mr O'Leary said that in the first nine months of the year about 6,500 new units were built. He said that is about half the amount of the "official figures" coming from the ESB connections. He said the industry needs to get 35,000 new units a year in order to meet demand. While the housing market is growing very substantially - with about 80% growth year on year - Mr O'Leary said that growth needs to continue for the next number of years. "Many different things need to happen for that to happen," he stated.

The economist said that house price growth could reach 15% by the end of the year when the recent trends are examined. But he said that we will probably see a slowdown in the rate of approvals in the first months of 2018 due to the Central Bank mortgage rules. This may lead to a slowdown in the rate of house price inflation. But this slowdown is coming from a higher number and so in money terms, Mr O'Leary said that house prices will continue to grow at a faster pace than people's wages. 

Mr O'Leary pointed out that 18% of mortgages issued in the first half of the year were above the Central Bank's limit. He said he does not think the Central Bank will change that limit, adding that he does not think they actually should. As people get priced out of a region, they go to the next affordable area for them and Mr O'Leary said you then get a situation of "sprawl". That is what is happening now, he added.

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