Mortgage borrowing growth has accelerated again, with the annual rate of growth reaching 25.8 per cent in January. The rise in home loans and a sharp rise in borrowing in other areas pushed overall credit growth to 18.7 per cent, its highest level in two-and-a-half years. Cliff Taylor, Economics Editor, reports.

Mortgage lending picked up sharply in the second half of last year and January was the sixth month in a row when the rate accelerated. It is now just fractionally below the 26 per cent record reached in February 2000, at the peak of the economic boom.

The question now is whether some evidence of a deceleration in house prices in recent surveys will feed through into mortgage lending, or whether the prospect of a prolonged period of low interest rates will continue to encourage borrowers.

This week, AIB reported a 34 per cent rise in its mortgage book last year and said it was confident about volume growth this year.

While the annual rate of mortgage borrowing accelerated in January, the actual volume of cash given out - just over €700 million - was modest compared to the previous six months, when more than €1.5 billion extra was extended on average each month.

However, the annual rate of growth still accelerated as the amount extended in January was more than in the same month in 2002.

While mortgages have been responsible for the bulk of borrowing growth in recent months, there was a noticeable pick-up in borrowing in other areas in January. Demand for non-mortgage credit accounted for two-thirds of the €2 billion rise in private-sector credit during the month. The annual growth rate in non-mortgage credit rose to 14.6 per cent in January, up from 13.5 per cent in December.

Most components of private sector credit expanded in January. As well as mortgage lending, there was a particularly sharp rise in loans, up to and including one year, which were some €750 million higher, as well as additional lending in overdrafts, repurchase agreements and non-residential mortgages.

The total amount of loans outstanding to the private sector amounts to €162.5 billion, of which €55.3 billion is accounted for by mortgage loans. Total credit increased by €20 billion in the year to January, of which €11.5 billion was due to the increase in mortgage loans.

With interest rates remaining low and increasing competition in the mortgage market, there is no reason to expect a sharp deceleration in mortgage credit growth over the coming months. The Irish Financial Services Regulatory Authority has recently called on financial institutions to tighten up on their assessments of new borrowers.

Last year, it seemed likely that interest rates would start to move up this year, slowing the property market. But analysts are now not expecting a rate increase for some time and there is some prospect of a small decline. There are also signs of intense competition in the market, with some institutions reducing fixed-rate mortgages and attractive tracker products on offer from an increasing number of institutions.