Mortgage approvals fall for first time in seven years as rate hikes bite

The slowdown in mortgage approvals is despite buyers being approved to borrow more after Central Bank lending limits were relaxed at the start of the year, figures from Banking and Payments Federation Ireland show.

Banks gave the green light for 3,378 mortgages, valued at €945m, in February. This was down 516 approvals on the same month last year, and 319 fewer than in January.

It is the first time in seven years there has been a dip in the numbers getting the green light to borrow for a property. The fall in 2016 was prompted by the introduction of the Central Bank’s lending limits.

There has been a huge fall-off in switching activity, as banks have responded to repeated European Central Bank rises with higher lending rates. There was a 30pc fall in switching activity.

There was also a dip in the numbers of first-time buyers being approved for a mortgage. A combination of rising mortgage rates and banks stress-testing borrowers, on the basis rates will rise further, are making it more difficult for potential buyers to qualify for mortgages, experts said.

Last month 1,877 first-time buyers were approved, down 319 from the same month last year.

But consumers are being approved to borrow more. The average approval amount has jumped by €7,000 to €281,000 in February compared with the previous month.

At the start of the year, Central Bank lending rules were relaxed allowing first-time buyers to borrow four times their income, rather than three-and-a-half times.

Second-time buyers now only need a 10pc deposit, down from 20pc previously.

Non-purchase mortgage activity, which includes switching and top-ups, fell by 30.9pc in February compared with last year.

Just 634 homeowners were approved for a switch last month, compared with 918 in February last year. There is a fall of 32.6pc in the value of the switcher mortgages approved to €144m in February over the past year.

Davy Stockbrokers economist Conall Mac Coille said: “The striking 2pc rise in the average approval to first-time-buyers to €281,350 – a fresh record high – could well be the first sign the surprise loosening of the Central Bank’s mortgage lending rules is having an impact on the market and will soon start to push up on house prices.”

He said the weak mortgage approvals data will add to concerns among estate agents the housing market is starting to slow.

Brian Hayes, chief executive of the Banking and Payments Federation, said the figures show a slowdown in approvals across almost all customer segments in volume and value terms.

But he said this was mainly due to a huge decline in switching activity.

“In February, non-purchase mortgage approvals, mainly made up of switching, fell by almost 31pc in volume terms year on year and this decline has had an impact on the overall slowdown we have seen in this month’s figures.”

He said the drop off in switching was expected given the huge wave of switching undertaken by customers in recent months.