Richard Curran: When it comes to mortgage market there shouldn't be any targets
Headlines that Irish mortgage lending looks set to triple in 2014, looks like good news on the face of it.
There is a view that many people would like to get a mortgage but can’t because banks either don’t have the money or the appetite to lend to them.
Just €750m was loaned out in mortgages last year and according to the Association of Expert Mortgage Advisors, the optimum level should be around €10bn.
The association is predicting that around €3bn to €4bn will be given out this year. There is no doubt that many people who should be a pretty good risk for securing a mortgage have not been able to get one because of the lending criteria operated by the banks.
But what will drive this increase in mortgage lending this year? If the level of mortgage lending triples in 2014, will it be because the banks are easing those criteria, or more people’s circumstances will have improved dramatically or simply more people will decide they are ready to take on a mortgage?
It may be a combination of all of these factors. A reasonable increase mortgage lending from such very low levels would be a good thing. But I don’t agree with the association’s analysis that €10bn is the optimum level.
The value of mortgage lending in 2007 was around €40bn. The industry is now saying that was too high, but due to demographic changes and the fact more people want to rent, the optimum is now a quarter of that level.
They weren’t saying the €40bn exceeded the optimal back in 2007 and I wonder what the industry would say if it went above €10bn now. Would it actually come out and say mortgage lending levels were too high? I doubt it.
There is no optimum level. The housing market is a market place. It is about supply, demand, price and availability of funding. The availability of funding bit, is derived from the risk appetite of the banks and how much customers are allowed to borrow by way of multiples of salary.
There might be an optimum level of house building reflecting demographics. There might even be an optimum number of mortgages or house sales. But can there really be an optimum value of mortgage lending when so many different factors affect the value of property?
The economy is improving in general, albeit in some sectors and regions more than others. That should improve job prospects and people’s confidence in seeking a mortgage. The banks are slowly working through their crisis era issues and that should improve their ability and desire to lend.
Both of these are positive developments that should lead to a greater level of house transactions and mortgage approvals.
The association’s estimates for the year may well be correct.
But that is surely as far as it goes. When it comes to the property market, we must have learned that we are better off without targets or determinations of what is optimum or not.