Thursday 8 December 2016

Surge in approvals for home loans - but few are likely to buy

People with green light to borrow chasing limited supply of properties

Published 28/09/2016 | 02:30

Many of the people being approved for a home loan are competing hard with each other for the few houses that are available. Stock image
Many of the people being approved for a home loan are competing hard with each other for the few houses that are available. Stock image

There has been a surge in the number of people getting approval for a mortgage, new figures from the banks show.

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But many of these people being approved for a home loan are competing hard with each other for the few houses that are available and are unlikely to end up drawing down the mortgage, experts have said.

In August, close to 3,000 people received mortgage approval to buy a home - a rise of 37pc on the same month last year, according to figures from the Banking and Payments Federation Ireland.

This was made up of first-time buyers and those moving from an existing home they own.

The sharp rise occurred despite the Central Bank dictating that borrowers have large deposits and limiting borrowing based on incomes.

The value of the mortgages approved rose by 50pc to €595m in August, compared with the same month last year.

Experts say there has been a jump in mortgage approval levels for a few months now.

Mortgage approvals have risen to €1.8bn in the past three months, up 33pc on the year.

But economist with Davy Stockbrokers, Conall Mac Coille, said people with the green light to borrow were chasing a limited number of properties for sale.

"The worry is that growing numbers of buyers are now chasing too few homes, with the numbers of properties listed for sale falling and weak housing construction," he said in a note to investors.

Historic

He added that the number of homes listed for sale on MyHome was close to a historic low - at 23,500 in June this year.

The average time to go 'sale agreed' narrowed to just 4.1 months in the three months up to June.

Mr Mac Coille added: "This is consistent with potential buyers being under greater pressure to secure homes.

"Put simply, the lack of housing construction means that greater numbers of potential buyers are focusing on a smaller pool of homes listed for sale."

He said the lack of homebuilding would inevitably hold back mortgage lending, increasing the pressure on the Government to take action to stimulate the sector.

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The figures from the banks show a doubling in the number of people who are switching their mortgages, although the overall figures are still low.

There were 264 mortgages switched in August, according to the three-month moving average figure used by the banks. This was up 106pc on the same month last year.

Goodbody Stockbrokers economist Dermot O'Leary said house price inflation was picking up and there was now accumulating evidence that the initial effects of the Central Bank's lending rules were starting to wear off.

"The underlying growth is clearly reflective of positive demographic developments and ongoing progress in the Irish labour market," he said.

Prices rose by 6.7pc in the year to July, after rising by 2.5pc in the month, the Central Statistics Office said last week.

The national average house price in 2015 was €236,000.

The latest mortgage approval figures come after a survey showed huge numbers of younger people say they doubt they will ever get to own their own homes.

Rising property prices and deposit requirements are making buying a home more difficult.

A recent survey from insurance broker AA Life Insurance found that 15pc of people between the ages of 25 and 35 now question if they will ever be homeowners. This is the so-called 'millennial generation' - those who reached adulthood from 2000 on.

The CSO price index showed first-time buyers are being squeezed out of the housing market.

Half of the market was made up of first-time buyers of homes and apartments just six years ago. However, by last year the proportion of new buyers was down to a quarter of all buyers.

Irish Independent

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