The Irish Central bank introduced controls on mortgage lending a year ago, including an 80% loan to value limit on most owner-occupied properties , alongside a 3.5 loan to income ceiling. First Time buyers can borrow up to 90% loan to value for a property below €220k, which implied that the partial exemption would only be relevant outside the Capital; prices in Dublin probably average around €300k, against €175k across the rest of the country. The Bank’s own research suggested the controls would dampen credit growth and reduce housing supply, with a limited impact on prices. There is undoubtedly a case for such controls, particularly in an era of historically low interest rates, but the timing appeared questionable given that credit has been contracting in Ireland since early 2010, with any new lending more than offset by repayments.
The latest data, just published, indicates that the controls are having a pronounced affect on new lending and are impacting house prices. Mortgage approvals for house purchase had been rising strongly (by an annual 40% in q1 2015 for example), albeit from a very low base, but that growth has stopped and approvals are now falling sharply; the annual decline in the final quarter was 20.3%, with December alone showing a 23.7% fall. There is not a consistent relationship between approvals and drawdowns but the trend in the former implies around 6,000 loans for house purchase in q4 against over 6,900 a year earlier.
One would expect the controls to bite harder in Dublin than elsewhere and the December data on residential property prices supports that view. Prices in the Capital , having risen by over 22% through 2014, fell in the first quarter of 2015 before regaining some momentum over the summer months and then fell again in the final quarter, by 0.7%, leaving the annual increase in December at just 2.6%. Prices ex-Dublin also fell marginally in the first quarter, implying an expectation effect from the controls, but picked up strong momentum in the latter months of the year. Indeed, the 5.8% rise in the three months to October was the strongest recorded by the CSO index, which starts in 2005, and other evidence shows that one has to go back to the late 1990’s for comparable gains. The pace of growth has slowed a little, with prices rising by 3.6% over the final three months of the year, leaving the annual increase in December at 10.2%, the same as in 2014. Some slowdown in Dublin prices was no doubt inevitable but the contrast between the Capital and elsewhere is striking, indicating that would-be buyers in Dublin may be looking further afield.
The Central Bank has indicated that it will assess the impact of the controls in mid-2016 although the pace of contraction in new lending may prompt a speedier review, as one doubts it was anticipated.