The mortgage market is still breaking records, despite repeated warnings from the Central Bank about the need for a slowdown in borrowing.
New figures show €1.7 billion was extended in July in new mortgage loans, the highest monthly total on record and €400 million higher than the average in earlier months of this year.
The annual rate of mortgage credit growth at 27.7 per cent was up from 27.3 per cent the previous month and is now at the highest rate in more than two decades. The July figure follows a strong spring season for the property market and reflects continued demand for new home purchases and property investment.
This is the highest annual rate of increase since the current data series started in 1996. The bank says that lending may have grown at a similar rate for a period in the 1980s, but at that time inflation was much higher.
In mid-July the Central Bank issued the latest in a line of warnings about property borrowing, cautioning that if the rate of increase did not slow, Irish households would become the most indebted in the EU over the next couple of years. IFSRA, the financial regulator which is linked to the bank, has also called on financial institutions to apply strict criteria when extending mortgage loans.
However, mortgage lending has continued to accelerate and the total amount outstanding is now approaching €70 billion. Borrowers continue to be encouraged by low interest rates and expectations that the European Central Bank (ECB) will not push up rates for some time.
In contrast, higher interest rates in the UK are starting to slow the housing market, with new mortgage applications dropping sharply in July.
Recent figures from the Permanent TSB/ESRI survey showed house price growth slowing here, with a 5.7 per cent increase in the first seven months of this year, compared to 8.1 per cent in the same period last year. A double digit increase in house prices is still likely for the year as a whole - putting borrowers under pressure to take out ever larger loans.
The borrowing figures for July were distorted by the reallocation of some €2 billion of mortgage credit to an Irish credit institution, which had been formerly counted as an asset of the parent institution abroad and not counted in the Central Bank data. The bank involved is understood to be Bank of Scotland (Ireland).
This meant that the annual growth rate before adjustment shot up to 31.6 per cent. However, when this is adjusted the bank estimates that the underlying growth rate was 27.7 per cent.
Borrowing is also accelerating in areas other than mortgages, reflecting a general pick-up in growth. Non-mortgage credit recorded an annual growth rate of 21.5 per cent, up from 20.7 per cent in June. The bank says that "most of this expansion was accounted for by lending to non-financial corporations", suggesting a pick-up in general business investment and activity.
Adding mortgage and non-mortgage lending together, total credit growth - after adjusting for the Bank of Scotland reallocation - rose to 25.4 per cent from 24.8 per cent the previous month. In an analysis of the figures, Mr Austin Hughes, chief economist at IIB Bank, pointed out that non-mortgage lending has accelerated very rapidly in recent months.
