Sharp decline in outstanding debt on holiday homes

HOLIDAY HOMES and second houses have dropped sharply out of favour among Irish consumers, with outstanding debt on these homes declining at an annual rate of 15 per cent, new figures from the Central Bank show.

A breakdown of private-sector credit issued by the Central Bank yesterday indicates that outstanding debt on holiday homes and second houses declined by €34 million in the second quarter of 2009 compared to the first quarter, and has dropped by €223 million over the last year, now standing at €1.3 billion.

The decline in the value of mortgages owed on these homes is far steeper than it is for main homes and buy-to-let investment properties, suggesting that as the recession has kicked in people have paid down debt on luxury holiday homes faster than they have been buying new getaway houses.

The Central Bank figures for outstanding debt on buy-to-let mortgages also reflected the subdued state of the investment market recently reported by the Irish Banking Federation (IBF).

The amount of money owed on buy-to-lets has dropped by €183 million, or 0.5 per cent, year-on-year.

Some €33.8 billion is outstanding on buy-to-let properties, which have become less attractive to new buyers as a result of plummeting house prices and a glut of competing rental properties. The IBF said last week that buy-to-let mortgages were the only category not to show a quarterly increase in new business from April to June.

Outstanding debt on main residences fell by €157 million in the second quarter despite the quarterly uptick in new business reported by the IBF.

However, on an annual basis, the value of money owed on main homes is up 2.9 per cent at €113 billion.

Overall, private-sector credit in the second quarter of 2009 was marginally lower than that recorded in the same period in 2008. The Central Bank said this was mainly due to writedowns of existing credit arrangements and increased provisions for bad and doubtful debts.

“The underlying stock of credit to the private sector was relatively unchanged as loan repayments in aggregate roughly matched new lending over the year,” according to a Central Bank note.

Over the quarter, private-sector credit fell by €4.7 billion or 1.2 per cent, with credit to almost all economic sectors declining.

“The broad-based drop in credit indicates the continuation of the slowdown in underlying credit growth witnessed since the autumn of 2008,” the bank said.

The annual rate of change in private-sector credit turned negative in the second quarter.

A Central Bank survey of the main lenders suggests that both reduced demand for credit and a tightening of credit standards are responsible for the lower levels of credit.