THE DEMAND for residential mortgages is now growing at its slowest annual rate for 14 years, according to statistics released yesterday by the Central Bank. The weakening demand for mortgages has been mirrored in a decline in housing sales.
In the year to February, mortgage lending increased by 12.3 per cent. At the height of the housing boom in 2006, the annual rate of mortgage lending growth averaged 27 per cent.
New mortgage lending for residential purchases amounted to just €712 million during February, the lowest monthly increase in home loans for five years. At the end of February, the outstanding stock of residential mortgages amounted to €141 billion.
The data sits well with figures issued by Permanent TSB and the ESRI last week, which showed that house prices have fallen in each of the last 12 months. Prices dropped by 0.8 per cent in February, following a 0.7 per cent decline in January.
The weakening tenor of property-related lending has dragged down the annual rate of growth in private-sector credit over the past year. Property-related lending includes credit extended to construction and real-estate development, as well as mortgage lending to households.
The annual growth in private-sector credit peaked at 30.3 per cent in the year to June 2006. Since then, the pace of credit expansion has fallen almost continuously. In the year to February 2008, private-sector credit increased by 15.6 per cent.
Thus, over the past 20 months, the pace of private-sector credit expansion has virtually halved. Private-sector credit growth in the year to February 2008 was the lowest annual rate of increase seen since September 2003.
During February itself, private-sector credit growth fell below €1 billion for the first time since April 2004. In February, private-sector credit - total lending by credit institutions in Ireland to non-Government Irish residents - increased by €914 million or 0.2 per cent to reach €379 billion.
The easing of private-sector credit expansion in recent months is not due solely to a weakening growth in the demand for loans. It also reflects tighter lending conditions, a product of the global credit crunch. Demand and supply conditions are working in concert at present to cause a rapid deceleration in the pace of private-sector credit growth in the Republic.
As confidence in the future wanes, consumers are keeping their credit cards in their wallets. In the first two months of this year, some €70 million has been paid off outstanding debts on the 2.176 million personal credit cards currently in issue.
In aggregate terms, personal credit card indebtedness increased by just €200 million or 7.8 per cent in the year to February 2008. This contrasts sharply with the 18.5 per cent rise in personal credit card indebtedness seen in the year to February 2007.
However, consumers have been even more conservative than these aggregate figures suggest. Over the past year, 123,000 new personal credit cards have been issued. As a result, the amount of debt on the average personal credit card has increased from €1,255 to €1,276 over the past year, an addition of just €21 or 1.7 per cent.
Deposits placed with all credit institutions declined by €6.3 billion during February. The largest part of this decline was accounted for by a decrease of €4.9 billion in overnight deposits. While there was some slight reduction in deposits placed with the retail clearing banks, it appears the primary cause of the decline during the month was a movement out of IFSC banks by foreign depositors.
