Mortgage growth fell to 22-year low in September

GROWTH IN residential mortgage lending fell to a 22-year low in September, while overall private-sector credit growth fell to its weakest annual rate in almost six years, according to new data from the Central Bank.

The falling property market pushed the annual rate of increase in residential mortgages down to 8.5 per cent in September, the lowest since September 1986, despite a net monthly increase of more than €700 million in mortgages compared to August.

Outstanding indebtedness on credit cards increased for the second month in a row to a total of €3.1 billion, the figures also show.

With consumer spending contracting as the economy plunges into recession, the annual rate of increase in credit card debt fell to 9.3 per cent, from 10.1 per cent in August.

Alan McQuaid, economist at stockbrokers Bloxham, said the sharp and rapid economic slowdown had taken its toll on consumer spending.

"The slowdown in credit growth is symptomatic of a consumer sector that has become increasingly more cautious in recent months as the global credit crunch and the deteriorating Irish economic outlook have significantly increased fears about domestic employment prospects going forward," Mr McQuaid said.

Overall credit growth and mortgage lending growth would continue to fall in the coming months, he added.

Overall private-sector credit fell by €329 million in September, bringing the total debt outstanding to €399.6 billion. This meant the annual growth rate decreased substantially from 12.9 per cent in August to 10.7 per cent in September.

However, the Central Bank said underlying private-sector credit actually grew during the month. It explained that the decline was due to technical reasons rather than more loans being repaid than were taken out. A sum of €1.4 billion was reclassified from resident to non-resident credit by one credit institution during the month. This cancelled out a €1.2 billion underlying increase in credit.

Excluding the technical reasons, private-sector credit would have shown an annual rate of increase of 11.1 per cent. However, this is still lower than August's rate of growth.

Residential mortgage lending is now likely to grow by around 7 per cent in 2008, if average final quarter lending patterns continue to hold, the Central Bank said in a note.

Over the month, term loans and revolving credit facilities increased by €494 million, loans up to terms of one year rose by €1.2 billion and overdrafts contracted by €117 million.

Overnight deposits declined by €1.9 billion. Deposits redeemable at notice of up to three months fell by €952 million and deposits with an agreed maturity of up to two years increased by €1.5 billion.