There was unprecedented demand for mortgages in June, as the Central Bank recorded the highest ever monthly increase in residential mortgage lending despite a slowdown in the housing market.
Residential mortgage lending increased by almost €2.1 billion last month, significantly surpassing the previous highest monthly increase of €1.7 billion, recorded in July 2004.
The annual growth rate in residential mortgage lending is running at 26.6 per cent, up from 25.9 per cent in May, and is now similar to the rates recorded at the end of 2004.
The Central Bank said this occurred despite house price inflation moderating considerably of late. The average price of a house increased by just 1.8 per cent in the five months to the end of May - half the growth in the market over the same period last year.
Residents now owe a total of almost €227 billion in credit, of which outstanding residential mortgage balances account for €82.2 billion.
The release of the new figures coincided with an announcement by Bank of Ireland that it will become the fourth lender to offer 100 per cent mortgages to first-time buyers.
Although demand for residential mortgages was "exceptionally strong" in June, growth in non-mortgage credit weakened, with the annual rate falling to 25.2 per cent, down from 25.7 per cent in May.
Overall, growth in private sector credit remained "strong and steady", according to the Central Bank's monthly statistics, with year-on-year growth in private sector credit easing slightly to 26.9 per cent last month, down from 27 per cent in May.
Term loans increased by almost €4 billion in June, while the value of loans with terms of less than one year rose by €531 million.
Total outstanding private sector credit increased by a relatively large amount - €6.3 billion - during June, but over 40 per cent related to loans to non-bank IFSC companies engaged in non-resident business activities.
Irish savers held a total of €5.8 billion in Special Savings Incentive Accounts (SSIAs) at the end of June, an increase of €152 million on the previous month.
The average contribution to SSIAs in the first six months of 2005 was €158, up from €141 during the same period in 2004.
Alan McQuaid, chief economist with Bloxham Stockbrokers, said consumers' demand for credit was likely to continue growing at over 20 per cent year-on-year for the foreseeable future.
Commenting on a recent expression of concern by the governor of the Central Bank, John Hurley, about increasing levels of personal debt, Mr McQuaid said there would need to be a sharp increase in interest rates before debt levels became a serious issue. "At this stage higher interest rates still look some way off," said Mr McQuaid.
Bloxham forecasts that ECB interest rates will rise by 50 base points in 2006, resulting in a key lending rate of 2.5 per cent.
The mortgage interest charged to consumers is linked to this key rate, which has remained at 2 per cent for over two years.
