Banks are well positioned to lend to customers who meet the criteria for a mortgage with capacity to repay always the key consideration. Keen to facilitate those who wish to take out a mortgage, banks have a range of materials available for borrowers which aim to guide customers through the mortgage application process and to set out what’s required of the customer. These materials are readily accessible on banks’ websites and through other channels. (For further information on managing your mortgage and advice for first time buyers, access our Customer Assist section).
Mortgage Approvals and Drawdowns
BPFI compiles and publishes a range of statistics on the Irish mortgage market including key data on mortgage approvals and drawdowns. With signs of stabilisation emerging in the market in 2012, activity levels in terms of mortgage approvals have been increasing steadily and recording an upward trend – albeit from a relatively low base. A total of 18,520 mortgages were approved in 2013, based on a three-month moving average, an increase of 4.1% over the 17,786 total approved in 2012. And this upward trend in mortgage approvals, evident in the annual figures to end-2013, has continued into 2014 (Figure 1). The July 2014 BPFI Mortgage Approvals Report, published on a monthly basis, shows a total of 13,300 mortgage approvals in the year-to-date, based on a three-month moving average, which represents a 38% increase over the same period in 2013.
Mortgage market activity has also been strengthening – albeit from a relatively low base – in the extent of mortgage drawdowns. The most recent BPFI/PwC Mortgage Market Profile, published each quarter, shows that some 4,803 mortgages to a value of €820 million were drawn down during Q2 2014. This represents a significant uplift in activity compared to the corresponding second quarter of 2013 (an increase of 48.7% in volume) with the number of mortgages drawn down at its highest Q2 level since 2010. See the latest BPFI/PwC Mortgage Market Profile
BPFI Policy Focus
- Challenge of Housing Supply: While not all mortgages that are approved will translate into actual drawdowns, the gap between the two has been widening over the course of 2014, a trend which is continuing to grow (Figure 2).
While various factors go to explaining this gap, including among others the time lag, and customer behaviour, a significant factor in recent times has been the growing shortage of suitable residential property in key locations. Together with other stakeholders, BPFI and its members are concerned that housing supply constraints in key locations do not become a serious impediment to sustained growth in the mortgage market.
This supply challenge is becoming an increasingly important one which requires the attention of policy makers and local authorities. Since the Government’s publication of its proposals in Construction 2020 , BPFI has engaged with policymakers and other stakeholders and emphasised the need to focus on a range of housing supply issues. With the figures clearly demonstrating banks willingness and capacity to lend to customers who meet the criteria for a mortgage, banks also fully recognise their role in the provision of development finance to builders and this is being addressed through the rollout of suitable propositions for viable developments.
- Mortgage Credit Directive: The Mortgage Credit Directive which comes into force in March 2016, will lead to some changes in the mortgage process. Many of the proposed changes are similar to existing practices and requirements in place here – e.g. suitability of product. BPFI is working with the authorities to ensure the new regulations do not negatively impact on the provision of mortgage finance to creditworthy borrowers.
There appears to be a consensus as to the likely ‘new normal’ level of mortgage lending activity over time in the residential property market of somewhere in the region of €8 billion (per year) – maybe somewhat higher. Either way, a very wide range of interdependent and interlinking social and economic factors will determine the true level of this new normal and when it will be appropriately reached. An extensive ESRI research programme, co-funded by BPFI and NAMA, is expected to contribute significantly to our understanding of this. Over the two-year programme papers on housing supply, housing demand and the role of credit will help to inform policy and practice going forward. The first research output “Alternative Scenarios for New Household Formation in Ireland” by David Duffy, David Byrne and John FitzGerald was published in April 2014. Further research papers on household formation and tenure choice, local housing markets and the role of credit in the future housing market are due for publication in the coming months.
There are clear signs of a renewed borrower confidence from a range of sources and this is inextricably linked to the wider macro economy. It is not just in borrowers’ interests but in banks’ own interests that we are well placed to support that renewed confidence.