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Mortgage lending growth lowest in 21 years (The Irish Times)

04 November 2011

Growth in home mortgage lending has dropped to its lowest rate since 1987, according to new data from the Central Bank.

The annual growth rate in residential mortgage lending dropped to 9.6 per cent in July, the first time it has sunk to single digits in more than 20 years. The slowdown reflects the sluggish state of the housing market and the nervous state of the economy.

Residential mortgages increased by €964 million in July, which the Central Bank said was in "marked contrast" to the monthly increase of €2.4 billion recorded in July 2006 and underlined the extent to which activity in the housing market has contracted.

Total outstanding residential mortgages stood at €146.3 billion in July.

The Central Bank statistics show no signs that consumers are struggling under the weight of piles of short-term debt. Outstanding indebtedness on credit cards fell last month, with the level of repayments, at €1.3 billion, exceeding the €1.2 billion in new spending on cards.

The annual rate of credit card indebtedness declined to 10.2 per cent, down from 11.4 per cent in June.

Overdrafts expanded by €1.1 billion last month, while overnight deposits declined by almost €1 billion. Deposits redeemable at notice of up to three months and deposits with a fixed term of up to two years also contracted.

Overall private-sector credit increased by €3.3 billion, or 0.8 per cent, during July, which was above the average monthly increase for the year to date.

This takes total lending by credit institutions in Ireland to non-Government residents to €396.3 billion.

But the annual rate of increase in credit growth continued to weaken, falling one percentage point to 13.3 per cent.

Property-related lending as a proportion of private-sector credit growth has declined in each of the last four quarters, the Central Bank's latest sectoral breakdown shows.

The annual growth rate in lending to the construction sector declined to 4.6 per cent in the second quarter of 2008, down from 35.6 per cent in the second quarter of 2007.

Alan McQuaid, economist at stockbroking firm Bloxham, said the bleak outlook for the Irish economy over the next six to 12 months meant credit growth was likely to weaken further, with the unadjusted residential mortgage lending growth likely to turn negative before the end of the year.

"The bottom line is that the downward trend in Irish credit growth is likely to continue for the foreseeable future," Mr McQuaid said.

"Indeed, it won't be too long in our view before the annual rate of increase in overall credit demand will be running in single digits as well and below the euro zone average, currently 11.1 per cent."

After an August filled with gloomy news on the labour market, public finances and consumer spending, there could be further bad news for the economy next week as data for the month of August is released on the number of people claiming jobseekers' benefits (the Live Register), the number of redundancies notified, activity in the manufacturing and services sectors and Government tax receipts.