Marked slowdown in growth of average new mortgage in 2018.

New mortgage lending in 2018 emerged in line with our expectations,continuing to grow but at a slower pace than the previous year, reflecting the impact of tighter Central Bank controls and the absence of adequate housing supply. The fourth quarter figures also confirm that the average mortgage is still rising but at a much slower pace, consistent with an easing in house price inflation.

FTB lending in the first half of the year was  growing at a pace well ahead of the Central Bank’s limits , implying a need for mortgage providers to curb lending growth in order to end the year in compliance with the controls. There was certainly  a notable weakening in mortgage approvals over the summer months, with annual declines, before a modest pick up again in the final quarter. Actual drawdowns in q4. at 9,600, were  much stronger relative to approvals than earlier in the year, so by acting  on approvals banks had  now secured some headroom to meet the Central Banks annual lending limits.

The stronger final quarter brought total drawdowns for house purchase for the full year to 32,123, and 9.2% ahead of the 2017 figure. This represented a notable slowdown in lending growth as the latter had risen by over 18%. In value terms, new lending for house purchase rose to €7.3bn last year, a 13.5% increase  on 2017, but again this represents a pronounced deceleration in the pace of growth. from 29%. What is most striking in the data is the trend in the average new mortgage for house purchase, which averaged €226,000 for the year, a rise of just 4%, with the final quarter showing an annual increase of only 1%. This is consistent with slowing house price inflation and also indicates that affordability is becoming a bigger issue.

Another notable trend in the BPFI figures is the strength of re-mortgaging, which rose from €700m in 2017 to €1.2bn in 2018, with top -up mortgages at €221m. Indeed, lending for house purchase last year fell to 80% of total mortgage lending, from over 90% pre the Central Bank controls. Total mortgage lending in 2018 was therefore €8.7bn (i.e. house purchase plus re-mortgaging and top ups) as against €7.3bn in 2017 and a cycle low of under €2.5bn in 2011.

For 2019 , the outlook is likely to be strongly influenced by the shape of Brexit that emerges  as expectations play a strong role in both mortgage demand and housing supply,  so the market would be badly affected by an outcome which results in a UK recession, with significantly negative implications for Ireland. Absent that, transactions, which probably grew by less than 5% last year ( the CSO data is only available till November) will likely pick up, given stronger house completions, so boosting the volume of new loans, but against that weaker house price inflation will dampen the size of the average  new mortgage and hence the growth in the value of lending.We will produce a more detailed forecast in the next few weeks.