Increase in mortgage lending not a risk to economy, says Central Bank

The acceleration in Irish mortgage lending last year "remains relatively modest", and does not constitute a risk to the economy, the Central Bank has concluded.

At its macro-prudential measures committee meeting in January, the bank noted that net mortgage lending in November had increased for the first time in seven years.

"It was agreed that such a rate of growth will be closely monitored notwithstanding that absolute amounts remain relatively modest," according to the minutes of the meeting, which is chaired by governor Philip Lane.

The committee also noted that at its most recent analysis the Central Bank’s mortgage market measures had concluded that house price growth – at over 12 per cent – was not unjustified given broader economic developments. However, it was agreed that the housing market would be monitored closely.

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Overall, the Central Bank concluded that “while the credit environment was noted to be strengthening, particularly in relation to household credit, overall aggregate credit conditions were considered to remain subdued”.

Regarding the commercial real estate market, the committee noted that annual price growth had remained in the 5-6 per cent range for the first three quarters of 2017.

“Indicators of external imbalances and bank resilience were observed not to point to an increase in cyclical vulnerabilities through this channel at this time,” it said.

New lending

The committee also noted that growth in new lending to SMEs had slowed in the third quarter of 2017 despite a general pick-up in activity across the economy.

Following discussion of the indicators, which included broader concerns around the headline indicators and circumstances in which a recalibration would be proportionate, the committee agreed that the proposed counter-cyclical capital buffer (CCyB) rate of zero per cent for the second quarter of 2018 was “appropriate at this juncture”.

The CCyB rate is reviewed by the bank on a quarterly basis, and can be increased up to 2.5 per cent if the Central Bank deems lending to be excessive.

A CCyB rate of 1 per cent is the level that reflects an economy that is running normally.

In recent times several macro-prudential measures have been activated via the banking system, including the CCyB and the mortgage lending rules.