Mortgage approvals rocket, putting pressure on supply of homes

Growth in the number of people who have obtained mortgage approval rocketed by 42 per cent in the year to February 2017, driven by first-time buyers looking to benefit from looser mortgage lending rules and the Government’s Help to Buy scheme.

The number of mortgage approvals rose to 2,840 in February, up from 1,996 a year earlier, but down from 3,055 in January. The value of approvals is up by 54 per cent, indicating that purchasers are looking to borrow more, standing at €585 million in February 2017, up from €379 million a year earlier.

The figures for February, published by the Banking and Payments Federation (BPFI), are presented on a three-month rolling average basis, meaning the latest figures average out the December-February period.

When the figures for February are looked at on their own, economist Dermot O’Leary of Goodbody said growth is accelerating, with a 52 per cent annual rise in the number of mortgage approvals and a 68 per cent rise in mortgage value.

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First-time buyers continue to drive the growth, accounting for one in two of every mortgage approved in the month, according to the BPFI. And the number of first-time buyer applications is also growing strongly, up by 50 per cent on the year. The value of approvals is also up by 70 per cent, indicating that that the average mortgage size is rising sharply.

Mr O’Leary said that it’s not yet clear if Government Help to Buy scheme, which began on January 1st, could be pushing prices at a faster pace. “But in a supply-constrained market, this is one of the side effects of demand-side stimuli.”

Trading up

While growth was more muted for those looking to trade up, growth trends remain strong: approvals rose by 34 per cent in February while the value increased by 41 per cent.

Switchers also remain active, with 223 people switching their mortgage during the month, up by 50 per cent on 2016. Their value has also increased, up by 52 per cent. Investors remain active, albeit at very low levels. The figures show that 152 buy-to-let mortgages were approved in February, up 21 per cent on the year.

There have been 31,590 mortgage approvals in the past 12 months, with first-time buyers accounting for 17,965 (56 per cent). At least 3,000 first-time buyers 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 said that the level of mortgage approvals is in line with the forecast for house completions. However, he said, “it is likely that these completions data are overstated. Moreover, some element of these units will go towards meeting the social housing deficit. Clearly, a significant deficit in housing will continue to exist, thus pushing prices up further.”

Investec economist Ronan Dunphy forecasts total mortgage lending of €7 billion in 2017, up 24 per cent from 2016. He says the strength of approvals in the first two months of the year "does suggest that the risk to this number lies to the upside, even though mortgage approvals do not flow perfectly through to actual drawdowns".

It appears that recent measures introduced to make the mortgage market more accessible for first-time buyers, including the Help to Buy scheme and looser mortgage lending rules, “are having a marked impact,” according to Mr Dunphy.

“Higher than expected new lending would be a positive for all domestic banks and offer scope for some modest upside to current net interest income forecasts.”