Decline in switching activity leads to drop in new mortgage approvals in February

A decline in switching activity following a busy period that saw many borrowers lock in fixed rates, contributed to a fall in new mortgage lending last month according to new data.

Mortgage approvals fell by 13.3% in February when compared to the same month last year, the information from the Banking and Payments Federation Ireland shows.

In total there were 3,378 new homes loans given the green light, down 8.6% compared to January.

First time buyers account for 56% of the total number, with mover purchasers making up nearly 24%.

The mortgages approved during the month were valued at €945 million.

This was a reduction of 6.9% compared to January and 8.1% versus February in 2022.

€528 million of that was for first time buyer loans and €263 million went to mover purchasers.

"Despite the slowdown we have seen in February, it is important to note that mortgage activity remains at historically high levels with almost €1.6 billion in approvals for FTBs and mover purchasers in the first two months of the year," said Brian Hayes, Chief Executive of the BPFI.

"Demand is particularly strong among FTBs, which accounted for almost 56% of the volume and value of mortgage approvals in February, with the Revenue Commissioners reporting over 11,000 applications for the Help to Buy scheme in the year to date."

Switching, top-ups and other non-purchase mortgage activity fell by 30.9% compared to the same month a year ago and 32.6% in value terms in comparison to February of last year.

"This fall off was expected given the substantial wave of switching undertaken by customers in recent months with almost €4.3 billion in new non-purchase approvals (mainly switching) in the twelve months ending January 2023," Mr Hayes said.

The switching activity was driven by people opting for fixed rates to counteract rising interest rates, as well as some mortgages holders moving loans as a result of Ulster Bank and KBC Bank Ireland's exit from the country.

Speaking on the Claire Byrne Show, Brian Hayes said the fall in mortgage approvals is not surprising given rising interest rates and high inflation.

Mr Hayes said the fall suggests people may be "standing back and seeing where the market is before taking the plunge to actually buy."

He said the slowdown was "small enough", adding that the figures should be seen in the context of a six-month period rather than one or two months.

BPFI believes the "slight slowdown in the first two months" is more to do with the reduction in the level of switching, he added.

He said 2022 was "an exceptional year for switching, extraordinarily high, largely because people were looking at interest rates, looking either for better rates from their own provider, or switching entirely to a new provider, and they were fixing for a longer period."

He also says that the 11,000 mortgage applications under the "Help to Buy" scheme for first-time buyers in the first two months of 2023 is almost half the 24,000 for the whole of last year.

He described this as an "exceptional " rise and "interesting" if first-time buyers - who account for 56% of all new mortgage lending in Ireland - are going to "take the pluge this year." 11:05

Brian Hayes said the six weeks it is taking some lenders to give mortgage approval is because of the work that needs to be done on both sides, not least by lenders to stress test the loans they agree and ensure that borrowers have the capacity to repay.

He said he expected waiting times for mortgage approval would come down as the year progresses.

He accepted that if a borrower has got all of their documentation together, it should only take about one month but said "sometimes there are legal issues to resolve and there are financial statement issues to resolve by borrowers".

"But approval is one thing, drawdown is another - sometimes people have multiple approvals as they try to get the best rates. But the real figure is the drawdown, the length of time it takes to drawdown the mortgage," he said.

On mortgage switching, Mr Hayes said it is down by at least a third on last year but historic rates of switching are quite low in Ireland, some of it to do with consumer inertia

"But despite the loss of two full-serviced retail banks - Ulster Bank and KBC Bank Ireland - we have competition," he stated.

"In future you're going to find more competition product-by-product rather than bank-by-bank," he added.