percent in the fourth quarter from a year earlier as increased
borrowing costs and falling property prices deterred potential
New loans to homebuyers fell to 8.28 billion euros ($12.1
billion) from 10.3 billion euros a year earlier, the Dublin-based
Irish Banking Federation said today in a report. Measured by
volume, the number of loans slid 22 percent to 37,719.
Eight interest rate increases by the European Central Bank
doubled mortgage interest costs in less than two years, dousing a
decade-long property boom that saw house prices quadruple. Prices
fell 7.3 percent last year, their first full-year decline in a
decade, while homebuilding is shrinking at a record pace.
People switching mortgages accounted for 19 percent of all
home loans in the period, up from 13 percent two years earlier.
From the previous quarter, the volume and value of loans
slipped 8 percent. First-time buyers accounted for about 20
percent of the value of loans in the three-month period and
investors accounted for about 19 percent. The average first-time
homebuyer’s mortgage was for 242,232 euros, according to the
I am amazed that investors were still quite active in the market during the last quarter.
Developers and builders have been managing cash flow to date by selling out rapidly “on launch” to fund their cash requirements. It was a pyramid system. Now, their cash flow has dried up and they are holding these assets. They have to increase their borrowing to make ends meet, but this is only a very short term option. Eventually they need to try and wind down their stock overhang, which is now starting because a rebound hasn’t occurred quickly enough (D’oh). It is stress borrowing, in much the same way as someone spending all their income suddenly loses their job and turns to racking up credit card debt…
This ties in with the new wave of discounting. Developers have now run out of wriggle room, banks have turned off the credit tap and they just HAVE to get these assets off their books. Just like the aforementioned person, who in the end can no longer rack up more debt and has to make ends meet.
What we should see over the coming year or so is a combination of the following:
Increasing number of discounters, leading to larger discounts and price falls.
A visible drop in investor lending.
A rise in insolvency in the construction industry.
What would be interest to know regarding the re-mortgage figures is the number of people who are increasing their mortgages (i.e. the hidden figure for additional top-ups). If the US/UK is anything to go by, the fact that the combined top-up/remortgage is increasing is a cause for worry, but this only holds true if additional equity is being released).
Figure 4.43: Household Borrowing per Capita, 2007
Ireland’s debt per capita has increased very rapidly in recent years and Ireland is now one of the most indebted Eurozone members. Average household debt per person is almost
€35,000 in 2007. 80% of this is mortgage debt, followed by consumer credit (13%).