Fall in home loans for fifth month in row

MORTGAGE BROKERS called on the Government to intervene in the subdued mortgage market yesterday after figures from the Central Bank showed residential mortgage lending declined by €84 million in August – the fifth consecutive month of decline.

The Professional Insurance Brokers Association said “excessively tight” lending practices were to blame for the drop in lending and were “endangering recovery” in the housing market.

“The dramatic fall-off in credit points to a new hyper-restrictive attitude to mortgage provision amongst the very lending institutions currently in receipt of massive liquidity injections and recapitalisation measures from the Government and the European Central Bank,” said the association’s chief executive Diarmuid Kelly.

Mr Kelly said the Government needed to urgently introduce measures that would promote anti-cyclical lending.

“Banks should be encouraged to lend during recessions and discouraged from excessive lending during booms,” he said.

The latest figures from the Central Bank show that the annual rate of change in overall private sector credit declined further in August, falling by 3 per cent.

Valuation effects – writedowns of loans, increased provisions for bad debts and exchange rate movements – accounted for around two-thirds of the €1.5 billion decline in private-sector credit during the month, the Central Bank said.

The drop in total private-sector credit in August follows a fall of €3.4 billion in July.

The latest figures show a change in the composition of private-sector credit. A 10 per cent reduction in the outstanding amount of non-mortgage loans was offset by the increased holdings of securities. This largely arose from securitisations made internally by credit institutions that have established special purpose vehicles for use as collateral in ECB liquidity operations.

The amount of household credit outstanding plunged by €469 million, as a fall in consumer credit accompanied the drop in mortgage loans.

The outstanding volume of mortgage debt has fallen by €132 million so far in 2009, compared with a €7 billion rise in the same period in 2008.

“It is clear from these latest figures that consumers continue to save and pay off debt rather than take out new loans, though some of this is likely down to the fact that credit from banking institutions is no longer freely available,” said Alan McQuaid, economist at stockbrokers Bloxham.