Irish mortgage lending to top €12bn next year for first time since crash – Davy

Davy has raised its forecasts for Irish mortgage lending for this year and next and now sees the value of activity topping €12 billion in 2022, the highest level since the 2008 crash, helped by rising house completions and the Government’s planned shared-equity scheme for first-time buyers.

Conall MacCoille, an economist with the stockbroking firm, has raised his 2022 mortgage market forecast for next year to €12.1 billion from €11.2 billion, previously, while he sees activity in 2023 coming to €14.2 billion, up from his previous estimate of €12.5 billion.

However, Davy does not expect the Central Banks’ current thorough review of its mortgage-lending rules to lead to any loosening in its restrictions for mortgage providers.

Figures obtained earlier this month by Davy from the Department of Housing show that the number of housing units started this year has hit almost 30,000 as builders rush to meet surging demand and try to make up for lost activity during the lockdowns. The brokerage sees house completions amounting to 29,000 next year.

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By contrast, completions for this year are on track to amount to 22,000, according to Banking and Payments Federation Ireland (BPFI).

The Government’s so-called Housing for All strategy, unveiled last month, is aimed at delivering an average 33,000 new homes a year in the Republic from 2021 to 2030, including social and affordable accommodation.

“The new Housing for All strategy is clearly aimed at stimulating homebuilding. The key initiative is the equity loan scheme, providing funding of up to 20 per cent of the purchase price, effectively allowing leverage up to 4.5 times income for first-time buyers of newly-built homes from 2022,” Mr MacCoille said.

Critique

The shared-equity scheme is aimed at helping borrowers come up with a down payment as the Central Bank rules restrict most first-time borrowers to taking on a mortgage of no more than 90 per cent of the value of a home – and 3.5 times borrowers’ gross income.

“Speculation has grown that the CBI [Central Bank of Ireland] may ease its mortgage lending rules once an ‘overarching framework review’ is concluded in 2022. We do not believe this is likely,” said Mr MacCoille.

"The potential inflationary impact of higher leverage was a key critique by the CBI of the new equity loan scheme and led to price caps being imposed on the scheme. Also, recent comments from [CBI] deputy governor Sharon Donnery and research published by the CBI argue against loosening the loan-to-income (LTI) and loan-to-value (LTV) regulatory thresholds."

Irish mortgage lending fell from a peak of almost €40 billion in 2006 to a post-crisis-era low of €2.4 billion six years later. It is widely expected by bankers and analysts to reach about €10 billion this year.