Research assesses the latest trends in household lending

• Economic Letter provides first overview of new mortgage lending in Ireland since changes to mortgage rules were introduced
• Mortgage lending grows by a third and over 90 per cent of new lending fell within the scope of the regulations
• Household Credit Market Report also published - one third of household transactions remain non-mortgaged, while the percentage of mortgages in negative equity continues to fall

In an Economic Letter, Macroprudential Measures and Irish Mortgage Lending: Insights from H1 2017 (PDF 15.12MB), Christina Kinghan, Paul Lyons, Yvonne McCarthy provide an overview of residential mortgage lending in Ireland in the first half of 2017. This research provides the first insights on mortgage lending following the changes announced in the 2016 review of the Central Bank's macroprudential mortgage market measures. Given that this represents only one period of lending under the amended measures, caution is warranted in interpreting the results.

The key findings are:

• The total value of new lending by the five institutions reporting data to the Central Bank for H1 2017 was €3.05 billion. This represented a 33 per cent increase on lending that took place in H1 2016.
• In total, 14,997 new loans were originated in H1 2017.
• Average loan-to-value (LTV) and loan-to-income (LTI) ratios rose slightly over the period for both First Time Buyers (FTBs) and Second and Subsequent Buyers (SSBs).
• 93 percent of lending was within the scope of the Regulations. Only a limited number (30 loans in total) of FTBs had an allowance to exceed the FTB LTV limit of 90 per cent LTV.
• In contrast, 20 per cent of the aggregate value of SSB lending in H1 2017 exceeded the 80 per cent LTV limit for that group.
• Regarding the LTI limit on Principal Dwelling Houses (PDH) lending, 18 per cent exceeded the 3.5 limit. This compares with 12 per cent in H1 2016. More FTBs received an LTI allowance than SSBs.
• FTBs in H1 2017 had a statistically larger loan size, property value, LTV, LTI and income level compared to FTBs in H1 2016. These borrowers also had, on average, a lower interest rate at 3.4 per cent, compared to 3.7 per cent in H1 2016. SSBs also had statistically larger loan sizes, property value, LTV and LTI in H1 2017 compared to H1 2016.

The Central Bank has also published its Household Credit Market Report for H2 2017 (PDF 5.14MB), providing an up-to-date picture of developments in the household credit market in Ireland. Among its findings, the report records that:

• Irish household debt continued to decline during Q1 2017 and is now 30 percent below the peak in Q3 2008. However, indebtedness remains high in a European context.
• Mortgage credit for PDHs increased at an annual rate of 1.4 per cent in Q2 2017, while loans for Buy-to-Let (BTL) purposes declined at an annual rate of -8.6 per cent.
• Despite a gradual increase in the share of mortgaged household residential property transactions since 2014, the share of non-mortgaged household transactions remains significant, at just over a third in Q2 2017.
• The average Standard or LTV variable rate for new PDH lending stood at 3.34 per cent in Q2 2017, while the average rate on fixed rate loans of 1 to 3 years stood at 3.24 per cent.
• The overall value of mortgages in arrears of over 90 days past due remains on a downward trend, falling to €15.8bn in Q2 2017. This represents approximately 13.0 per cent of total mortgage balances.
• The percentage of mortgages in negative equity continues to fall, standing at 11 per cent of PDH mortgages in Q2 2017.
• In August 2017, 7 per cent of credit cards exceeded their credit limit, while 36 per cent had balances of between 75 and 100 per cent of their credit limits, a slight reduction when compared to August 2015.

Notes

The views presented in Economic Letters are those of the authors alone and do not necessarily represent the official views of the Central Bank of Ireland.