Competition leading to surge in mortgage approvals
Published 29/08/2014 | 02:30
MORTGAGE approvals have surged by 46pc in the last quarter compared to the same period last year.
The good news for homebuyers is that approvals are now increasing by 12.7pc month on month.
On average, in the three months to the end of July 2014, a total of 2,555 mortgages were agreed in principle each month, according to the latest bulletin just published by the Irish Banking Federation (IBF).
An overwhelming 92pc of these approvals were for house purchases, indicating that families are back in the market.
The total average value of mortgages approved per month was €462m.
The cash value of mortgage approvals increased by 54pc year-on-year and by 13.8pc month-on-month.
It means that the year to the end of July has seen some 13,300 mortgage approvals valued at over €2.3bn.
Another report issued earlier this month by the IBF showed that loan volumes actually paid out (as opposed to agreed) in the second quarter were also up by a significant 48.7pc year on year.
However, one financial sector source who did not wish to be named said the loan approval figures may be misleading given revived level of competition between the banks.
"There has been a big increase in actual lending - in my experience by about 15pc in the quarter covered by this report - but I'd estimate that at least one-third of approvals currently issued don't translate into actual drawdowns at all.
"One bank in particular is handing out approvals like sweets at the moment as a part of a strategy to increase market share, but that doesn't mean that their actual lending has increased proportionately," the source said.
Previous figures issued by the IBF's do show that drawdowns as a percentage of approvals are falling.
The market source also cited a shortage of available property as a big part of the reason for the recent spike in approvals.
"It works like this - five people get approval for one house but only one person buys the property. The other four go off and have to find another property and they have to go and get four new approvals.
"It means that the small number of properties on offer are generating an inordinately large number of approvals and a high number of unsuccessful bidders keep having to get more approvals without actually buying a house."
The source said that because more banks are now lending it is also common to see individual househunters obtaining approval from more than one lender, which further adds to the approvals total.
Karl Deeter, of Irish Mortgage Brokers, welcomed the report as an indicator that the banks are lending again but agreed that the serious shortage of property was having an impact on approval numbers.
"I think we need to concentrate on the figures for mortgages drawn down rather than approved - and these are certainly well up.
"But what we are also seeing here is a wall of latent credit building up and this is a classical sign - not that something is wrong with credit provision - but with housing supply.
"It means a big tranche of credit which is ready to go but is not actually being used," Mr Deeter said.
While conditions are improving in the property market, it is still estimated that supply of housing is running at just one third of what is typical in a "normal" market.
New home construction, meanwhile, is reckoned to be running at a quarter of what is currently required.