House price inflation in Dublin is slowing according to the recent CSO data; values rose by just 0.9% in the three months to May and actually fell in South Dublin, by 1.0%. An increase in supply is widely expected to dampen price pressures but new house sales year to date in the Capital are marginally down on the same period last year, as are total transactions, so demand factors may be playing a part. London and Dublin prices have been highly correlated in recent years and the price falls seen in the former may be having an impact on investor interest in the Dublin market. For buyers with Irish mortgages the latest data from the BPFI, on approvals and drawdowns, indicates that the recent tightening of mortgage controls is impacting and that affordability is becoming more important as a constraining factor.
Mortgage approvals for house purchase fell by an annual 4.6% in June and rose marginally in the second quarter as a whole ( by 0.8%) . FTB approvals fell in q2, however, by 0.8%, and have been weak since the the first few months of the year; 10,882 mortgages were approved for first time buyers in the first half of 2018, against over 11,000 in the same period last year. A quarter of mortgage loans to FTB’s exceeded the 3.5 LTI limit last year and the permitted excess was reduced to 20% in 2018, so one might expect that to dampen lending for house purchase, particularly as affordability ( the annual payment on a new mortgage relative to income) has deteriorated given the rise in house prices and associated increase in the value of an average new mortgage. Indeed, it is noteworthy that the average new mortgage for house purchase in q2 of €225,500 was broadly unchanged on q1 and 5% higher than a year earlier, as against a 9% increase in 2017.
The number of mortgages for house purchase actually drawn down in q2 amounted to 7,381 or 9.2% above the same period in 2017, a slower pace of growth than the 9.6% increase in q1 and the 14.7% recorded in q4 last year. The value figure was €1.7bn, up an annual 14.7%, against an 18.5% annual rise in q1. The growth in total mortgage lending ( i.e including top-ups and re-mortgaging/ switching) was unchanged at 22%, however, amounting to €2bn in q2 , driven by a doubling of re-mortgaging/ switching over the year. Indeed, the latter amounts to 14% of total loans in q2 and one in five mortgage loans are now not for house purchase, the highest share since 2011.
In sum, the growth in mortgage lending for house purchase is slowing, and the average new mortgage is also growing at a more modest pace , with FTBs squeezed by affordability and tighter mortgage controls. The steady stream of lower mortgage rate announcements indicates banks are responding, and that competition is more intense in re-mortgaging and switching.