Banks' share of mortgage market increases to 81%

Banks are increasing their share of the mortgage market at the expense of building societies, according to the latest Government statistics on housing.Figures released by the Department of the Environment, Heritage and Local Government earlier this week show that banks provided almost 81 per cent of new mortgages in the first quarter of the year.

Building societies took 19 per cent of the market, with local authorities advancing 0.2 per cent of loans.

In the first quarter of 2002, banks accounted for 76.5 per cent of new homeloans, with building societies sharing 20.5 per cent of the market.

Merrion Stockbrokers analyst Mr Séamus Murphy suggested in a note issued yesterday that the upswing in banks' share of mortgage business may reflect the "more competitive stance of AIB" over recent years, as well as the entry of Bank of Scotland into the residential mortgage sector.

He said the Government statistics confirmed indications already provided by the banks on their mortgage operations.

Banks have been "highly reliant" on mortgage lending to maintain loan growth over recent years, Mr Murphy said.

The Central Bank made similar observations last month when it warned that financial institutions may be tempted to "cut corners" on loan criteria to meet profitability expectations.

The Government figures for the first quarter show that lenders advanced almost €2.5 billion in mortgages over the first quarter - a 35 per cent increase on the same period in 2002.

About €1 billion was used to purchase new houses, with the remainder spent on second-hand properties. In total, 17,842 new mortgages were advanced over the first three months.

The average price for houses purchased was €278,819.

The numbers point to a rise in the popularity of variable mortgages, with almost two-thirds of new borrowers shying away from fixed rates, as variable rates approach a historical low. The percentage of new variable rate loan has been rising steadily over the past few years and has doubled since 1998.

Most of the homeloans advanced in the first quarter were annuity mortgages - the borrower repays a portion of the capital and interest each month. Just 2.9 per cent were endowment mortgages.