Slowdown in mortgage approvals despite ‘strong’ demand for home loans

The number of borrowers approved for home loans in August fell sharply, according to new figures from the Banking and Payments Federation of Ireland (BPFI).

Data released on Friday show that the number of mortgages approved fell by 4.5 per cent month-on-month and by 18.2 per cent compared with the same period last year.

The figures published by the banking lobby group also indicate that first-time buyers (FTBs) remain the dominant cohort within the mortgage market with the number of approvals for the group topping 30,000 in the 12-month period to the end of August, a first since the data series began in 2011.

Overall, a total of 4,534 home loans were approved in August, a decline of 4.5 per cent from May, which was the busiest month for FTB approvals since 2011. Of the total, 62.4 per cent or 2,829 of the loans approved were for FTBs.

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‘Historical highs’

The overall value of mortgages approved in August fell 3.9 per cent to €1.3 billion, a 14.2 per cent decline on the same period last year.

BPFI chief economist Ali Uğur said approvals activity usually peaks in May and July so “it’s not surprising to see approvals fall from the historical highs” of May.

However, he said: “FTBs continue to dominate the market with FTB mortgage approval values reaching more than €8.5 billion in the twelve months ending August 2023, while the annualised number of FTB mortgage approvals exceeded 30,000 for the first time since our data series began in 2011.”

Approval statistics give an indication of the level of demand for home loans within the market but there remains a mismatch between demand and the supply of homes available for purchase.

“For the majority of our clients that come to us seeking mortgage approval, they’re not property specific,” Martina Hennessy, managing director of online mortgage broker Doddl, told The Irish Times. “They don’t have a property in mind. So the approval figures reflect the demand in the market, but the volume of those going sale agreed is much lower.”

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FTBs, typically the largest cohort within the market, have been assisted by changes made to the mortgage lending rules by the Central Bank of Ireland earlier this year and the overall strength of the economy.

But the number of mortgages reaching the drawdown stage has plummeted so far this year, according to previous BPFI reports, with would-be homeowners still grappling with a shortfall of available homes.

‘Mortgage completions’

“The timeline to when somebody goes sale agreed from when they have their approval is continuing to extend,” said Ms Hennessy. “We’re into four, five and six months. In the market, what the banks are seeing and what we brokers are seeing, you have a huge volume of house-hunters, but it’s very slow to convert to mortgage completions.”

Meanwhile, the BPFI figures show the decline in remortgaging and switching activity continued in August with volumes down 79.4 per cent from last year when borrowers were piling into fix-rate products to get ahead of rising central bank rates. The value of loans approved in this category has also declined by 81.7 per cent in the past year to just €82 million.

Mr Uğur said the drop-off in switching activity was largely to blame for the overall decline in approval volumes and values over the period. Notwithstanding the slowdown, he said the pipeline for home purchase drawdowns “remains very strong”.