Mortgage approvals fall sharply as higher borrowing costs curtail buyers

Mortgage activity in the State’s housing market fell sharply last month as higher borrowing costs dampened activity.

Figures from the Banking & Payments Federation Ireland (BPFI) show the volume and value of mortgages approved in February both fell as lenders raised their mortgage rates in response to European Central Bank (ECB) rate hikes.

According to the BPFI, some 3,378 mortgages were approved last month, down 8.6 per cent on the previous month and 13.3 per cent on the same month last year. First-time buyers (FTBs) accounted for 1,877 mortgages (55.6 per cent of total volume) while mover purchasers accounted for 801 (23.7 per cent). Switching and top-ups accounted for the remainder.

The value of approvals for the month came to €945 million, down nearly 7 per cent on the previous month and 8.1 per cent in year on year terms.

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Property markets worldwide are showing signs of slowing in response to higher interest rates with some going into reverse already.

While Irish banks have been increasing mortgage rates since the ECB started to hike official borrowing costs in July, they have lagged behind most euro zone banks because they had a higher starting point and domestic lenders have received a major income boost on their deposits.

The BPFI figures show non-purchase mortgage activity, which includes switching and top-ups, fell by 30.9 per cent year on year in volume terms to 634 and by 32.6 per cent year on year to €144 million in the same period.

“While our latest figures show a slowdown in approvals across almost all customer segments in volume and value terms, it is important that we look at this in the context of the significant decline we are seeing in switching activity,” BPFI chief executive Brian Hayes said.

“In February, non-purchase mortgage approvals, mainly made up of switching, fell by almost 31 per cent in volume terms year on year and this decline has had an impact on the overall slowdown we have seen in this month’s figures,” he said.

“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 12 months ending January 2023,” Mr Hayes said.

“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,” he added.

Mr Hayes said demand was particularly strong among FTBs, which accounted for almost 56 per cent of the volume and value of mortgage approvals in February. Revenue has reported more than 11,000 applications for the Help to Buy scheme in the year to date, he added.

While higher borrowing costs globally have dampened activity in property markets, prices here are expected to keep growing in 2023 but at a reduced rate.

The Central Statistics Office’s (CSO) latest Residential Property Price Index showed house price inflation on an annual basis fell to 6.1 per cent in January, down from 7.7 per cent in December. The data also showed prices fell by 0.6 per cent on a monthly basis.