Our banks really need to start lending again
As we report in today's paper, a Central Bank report on bank lending has found that the banks are making it harder for people to get mortgages in the belief that house prices still have further to fall.
With the latest CSO figures showing that prices have already fallen by 47pc from their 2007 peak, this reluctance on the part of the banks to lend threatens to send house prices even lower and will offset any gains from the increase in mortgage interest relief for first-time buyers announced by the Government in last December's Budget.
Just as the banks helped to inflate the housing bubble, helping to raise prices to ridiculous levels by their irresponsible lending, they are now worsening the property crash by their refusal to lend in most cases. As the Central Bank report makes clear, whatever their public protestations, the banks simply aren't lending to most would-be purchasers. The old adage about a banker being someone who, after lending you an umbrella, asks for it back as soon as it begins to rain, springs to mind.
In practice, after receiving €63bn from the taxpayer to repair their broken balance sheets, of which up to €9.5bn was to cover losses on their mortgage books, the Irish banks have pocketed the state cash and virtually ceased lending to homebuyers.
While the banks may justify this stance on the grounds of prudence, that defence won't wash. Very few people can afford to purchase their homes exclusively with cash. In order to do so, the vast majority of buyers will need to borrow money. This means that when, as is currently the case, the banks are refusing to lend to buyers, house prices will fall.
In other words, the banks' fears that house prices have further to fall are at least in part a self-fulfilling prophecy: if the banks believe that house prices will fall and they refuse to lend, then house prices will fall.
As things stand, the banks are now a large part of the problem. Given the extent of the fall in house prices that we have already experienced Irish house prices are now relatively "affordable" by international standards, a point that was confirmed by the recent Demographia International survey of house prices in 325 English-speaking cities throughout the world.
If house prices are to stabilise, let alone begin to recover, it is vital that the banks start lending again. The Government has already set the banks targets for lending to SMEs. It must do the same for mortgage lending.
Irish Independent
