Central Bank rules ‘will stem bubble’

The number of mortgage loans drawn down by home buyers has rebounded to their highest level for seven years, but new Central Bank restrictions on lending will likely stem any new credit-fuelled house price boom, analysts predict.

New figures from industry body the Banking and Payments Federation confirmed that first-time buyers, and not investors, are now driving demand in the housing market.

The number of new loans drawn by home purchasers climbed to 5,600 loans during the first three months of the year from the 3,425 loans drawn down a year earlier, the figures show.

The number of first-time buyer loans accounted for about 54% of all loans in the quarter.

The value of the new loans totalled €983m, up from €568m a year earlier, and the highest since the second quarter of 2008.

Ireland’s housing market had been dominated by cash buyers, and not first-time buyers in early stage of the recovery. But despite a huge increase in prices, the shortage of new housing has meant that even the limited number of cash buyers drove up prices, raising fears that any new credit boom could fuel another round of sharp rises in house prices when first-time buyers returned in large numbers to the market.

To stem any house prices boom, the Central Bank earlier this year applied new rules on lending. A cap, at 3.5 times income, limits the amount home buyers can borrow from the mortgage lender. A first-time buyer can borrow at most 90% of the first €220,000 of the property value, and 80% of any remaining amount. The new rules did not apply for borrowers who had existing approvals, but had yet to draw down their loans.

Eamonn Hughes, analyst at Goodbody Stockbrokers, said that the figures confirm that first-time buyers had returned in force to the home loans market, adding that the rate of increase was likely to slow as the Central Bank restrictions take hold later this year. “We do expect the restrictions to work because although we see a continuing up-tick in the second quarter, we see [loan] growth slowing in the final six months of the year.” Goodbody is not increasing its forecasts for house price inflation on the new numbers. It forecasts prices will rise by 6.5% this year.

Davy Stockbrokers said there was little slowdown in the Irish mortgage or housing market activity so far despite the Government ending its capital gains tax exemptions in 2014.

CSO figures published last month showed residential property prices resumed their growth in March and are now 16.8% more expensive than a year earlier.

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