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Figures show home loans rising but at slowest rate in 21 years

MORTGAGE lending grew at the slowest pace in 21 years over the twelve months to July, as the housing market stalled.

Figures from the Central Bank show that lending last month was 9.6pc higher than in July last year. It is the first time the annual growth in home loans has been in single figures since 1987.

The figures do not show any sudden collapse in mortgage lending, which is still growing by just under €1bn a year and increased by €964m in July. However, this compares with average increases of over €2bn a month in 2006.

This slowed to just over €1bn a month after the credit crunch began just over twelve months ago and eased further this year.

Total mortgage loans of €146bn were up 4.2pc in the first seven months of the year, compared with 6.8pc in the same period last year and 12.7pc in 2006.

Most, or all, of the €7bn in mortgages which was "securitised" in June by packaging loans and selling them as an investment, appears to have been placed with the European Central Bank as collateral for a loan. The figures show that central bank lending to the Irish banking system rose from €38.4bn to €44.1bn in July.

Growth in non-mortgage borrowing, mainly by companies, is also slowing, but remains rapid. Over €2bn was borrowed in July, bringing the total 18.8pc higher than last year. That compares with growth rates in non-mortgage credit of almost 30pc in 2006.

Recent detailed figures for June showed lending to the property and construction sectors as a proportion of total lending declined for the fourth consecutive quarter.

Credit card holders also continued to draw in their horns in July. New spending during the month amounted to €1.2bn, but repayments came to €1.3bn.

That brought credit card debt below €132m, from a record level of €145m last December. The fall in outstanding debt came despite an increase of 73,000 in the number of credit cards on issue over the seven months. Alan McQuaid, economist at Bloxham Stockbrokers, said figures from Ireland and the rest of the euro area showing falls in currency in circulation and overnight deposits, "are pointing to deep recession in the 15-country bloc in the coming months."

In Ireland, M1 fell from a peak of over €94bn last July to €83bn, driven by a reduction in overnight deposits in banks. Mr McQuaid said mortgage lending could actually be falling by the end of the ear. "With the outlook for the Irish economy looking quite bleak over the next six to twelve months, credit growth is likely to weaken further."

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