Banks tighten loan terms amid property-price fears
Published 02/02/2012 | 05:00
BANKS are making it harder for people to get mortgages because they believe house prices will keep falling and fear the economy will continue to slow down.
The lenders are imposing tougher conditions before they will grant mortgages, a Central Bank survey on lending has found.
Regulators said banks would continue to turn down applications for mortgages despite the Government boosting the tax reliefs it will pay new buyers this year, and banks claiming to be willing to lend.
Although banks have cut the interest rates they charge on mortgages, at the same time they are demanding larger deposits, the Central Bank said.
But it is not just a reluctance to lend that is keeping the property market in a price-fall spiral. Demand for home loans weakened in the last three months of last year due to economic uncertainty.
House prices have fallen by half since the peak of the property bubble in 2007, with an international study last month concluding that prices in Ireland were now among the most affordable in the world.
But the Central Bank survey found that lenders were being put off by the likelihood that prices would keep falling and have responded to this by making it harder to get approved for a mortgage.
"The tightening of credit standards in respect of mortgage lending was attributed to less favourable expectations regarding economic activity, along with diminished prospects for the housing market," the survey stated.
Hopes of an uplift in the property market have been dashed by a comment in the survey that "credit standards are expected to tighten on loans to households with loan demand anticipated to remain unchanged".
The availability of finance was the biggest stumbling block for the property market, the Royal Society of Chartered Surveyors Ireland (RSCSI), whose members include estate agents, said in a report this week.
A lack of banking funding means up to a quarter of house purchases are now made by cash buyers.
The RSCSI said: "On the residential side, only those in secure roles either in the public service or from high-profile, international firms are being offered mortgages, despite claims to the contrary from the banks themselves."
Most banks were now demanding larger deposits, Frank Conway of Irish Mortgage Corporation said.
Belgium-owned KBC Bank has gone from accepting a 10pc deposit to forcing new buyers to stump up 20pc of the house purchase price.
And, at the end of last year, AIB said it would no longer fund one-bedroom apartments. The bank has also told those taking out a mortgage and getting financial support from their parents to have their parents named on the mortgage documents as co-borrowers.
However, banks claim they are supporting the mortgage market.
Bank of Ireland announced a €1.5bn special mortgage fund for new buyers in December, which could help fund the purchase of around 10,000 first-time-buyer homes.
AIB claimed last month it was approving three out of four mortgage applications.
Permanent TSB cut its loan rate for new buyers, while those with a 20pc deposit can get a rate as low as 3.04pc from AIB.
December's Budget provided a boost for first-time buyers who purchase this year. New buyer couples will be able to get up to €5,000 a year in mortgage tax relief if they buy before the end of this year.
A spokesman for the Irish Banking Federation said banks were engaged in prudent lending to prudent borrowers.