Early signs that Help-to-buy could be driving up property prices

Mortgage approvals jumped by 41 per cent in the three months to end-January as first-time buyers flocked to get a loan in the wake of looser mortgage lending rules and to avail of the Government’s new help to buy scheme.

According to figures from the Banking & Payments Federation, some 3,055 mortgages were approved per month, on average, in the three months ending January 2017, up by 41 per cent year on year, but down by 2.8 per cent from December 2016 to January.

Banks lent, on average €628 million a month over the period, 53.2 per cent ahead of the year ago period though dow 2 per cent month-on-month.

First-time buyers (FTB) are driving growth, accounting for almost one in every two mortgages approved (48.2 per cent by number and 47 per cent by value) in the three months ending January 2017.

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Increased activity also seems to be translating into increased purchase prices. The average loan size in January 2017 was €211,859, up by 9.1 per cent year-on-year, and the second highest level after December 2015, since the series began in 2011.

Help to Buy could also be seen to be driving prices up for the first-time buyer cohort, or alternatively, first-time buyers are using the funds available from the scheme to opt for a more expensive property.

Figures show that the average loan approved for a first-time buyer acceleerated faster than for the marekt as whole – at 12.4 per cent in the three months to end-January 2017 to €200,042.

Dermot O’Leary, economist with Goodbody Stockbrokers, cautioned that this has been a feature for some time, so should not be automatically attributed to the introduction of the scheme.

Some 3,000 FTBs are understood to have applied so far for the Help to Buy scheme, which offers 5 per cent back on the purchase of a new home for eligible applicants, up to a maximum of €20,000. More than 50 developers have also been approved for the scheme.

Mr O’Leary says that the latest upward trending figures indicate that the market may return to “normality” sooner than expected. The stockbroker is forecasting mortgage drawdowns of some €7 billion this year, up by 22 per cent year on year.

Switchers are back – but not in huge numbers

With banks increasingly offering cash backs on drawdowns and other incentives such as free legal fees to switch – as well as more competitive interest rates – it’s no surprise the number of people switching continues to rise. According to the latest figures, switching approvals are up by almost 40 per cent in the year to end-January by number, and by 45 per cent by value. This means that remortgaging accounted for almost 9 per cent of new approvals in the year to January, up from 6.7 per cent a year earlier.

What might surprise however is that switching activity nonetheless remains rather muted – figures show that there were still only 243 people who switched their mortgage in January, and this fell from 264 in December 2016.

Return of the investor?

The latest figures also show continued growth in the number of investors taking out a mortgage to finance a property purchase. According to the BPFI, some 161 buy to let mortgages were approved in January, up by 1.3 per cent on the month, and by almost 20 per cent on the year. Activity in this sector has increased in recent months, due to the arrival of players such as non-banking lender Dilosk/ICC Mortgages, which has a new €200 million buy-to-let mortgage fund targeting property investors.