Mortgage approvals plummeted in the three months to January 2016, as first-time buyers either fled the market or postponed their mortgage approval application in the wake of the new lending regulations from the Central Bank.

On a year-on-year basis, the number of mortgages approved to January 2016 plummeted by 15 per cent, according to latest figures from the Banking & Payments Federation Ireland (BPFI), while the value of mortgage approvals slid by 13.6 per cent.

First-time buyers

The decline in mortgage approvals was most marked for first time buyers (FTB) however, with mortgage approvals down by 23.1 per cent on a number basis, to 1,067, and by 12.4 per cent (€190m) on a value basis. These are the lowest level of approvals since the series began in September 2014, although FTBs still accounted for about 50 per cent of all mortgage approvals.

While the end of the year is traditionally a quiet time for the housing market, and the last quarter of 2014 was particularly strong ahead of the new lending rules, the figures nonetheless show a marked decrease.

Keith Lowe, chief executive of DNG, said that the figures “surprised” him.

“On the ground we’re not experience any drop off, especially on the new homes front,” he said. Indeed the estate agent is set to launch Dodderbrook, a scheme of 3-4 bed semi-detached houses at Ballycullen this Saturday, and Mr Lowe says that 300 people have already registered their interest in the scheme.

“Anecdotally it just doesn’t seem to make sense,” he added.

Central Bank rules

Investec analysts John Cronin and Cian Harty said that the decline in mortgage approvals is related to the dampening in demand for new mortgage loans in response to the Central Bank of Ireland's (CBI's) macroprudential regulations. However, they added that they expect the effects of these regulations "will bed down and normalise over the course of the year".

The rules, which were introduced in February 2015, restrict loan to income multiple to 3.5 times income, and loan to value to 80 per cent, although exceptions up to a certain limit are allowed.

Rachel Doyle, chief operations officer with broker group PIBA, said that the figures show just how difficult the market has become for first-time buyers.

“The fact is home ownership is now beyond the reach of many potential first-time buyers who are being forced into a very tight and increasingly expensive rental market,” she said, adding that the “over-zealous and ill-timed” Central Bank rules have severely impacted both the first-time-buyer and the trader-up segments of the market.

“The Central Bank should reduce the 20 per cent deposit requirement to 10 per cent with the maximum loan amount being increased from 3.5 to 4.5 times income,” she urged.

However, one aspect of the rules which may be hitting mortgage approvals is the room for exceptions. Under the rules, banks can allow a certain proportion of their mortgage books exceed the aforementioned limits. As these are typically run on an annual or quarterly basis, banks effectively ran out of these exceptions by year-end. This may have led some putative homeowners to postpone their mortgage approval - and the chance to get a bigger loan - until the new year, causing the slump in the figures.

Switchers on the move

In comparison, switchers are on the rise however, with the figures showing that there was a significant increase in both re-mortgage and top-up mortgage approvals. More than 400 homeowners opted to switch mortgages in the three months, at a value of €98 million, most likely in order to avail of lower rates. This represented a year-on-year volume increase of 105.1 per cent.

Even more homeowners (about 450) opted to top up their mortgage in the three months, at a total value of €34 million, giving rise to a 12.7 per cent year-on-year increase in volume.

Drawdown figures

Earlier this month figures published by the BPFI showed that 8,103 mortgage were drawn down in the fourth quarter, up 6.9 per cent year-on-year. The value of the mortgages drawndown rose by 8.2 per cent to € 1.45 billion. One could expect that the slowdown in approvals will feed into drawdown figures later in the year.