Official mortgage lending figures published last week may understate the rate of growth in borrowing for house purchases by up to a third. The Central Bank, which published the data, accepted yesterday that its figure for this important economic indicator could be substantially lower than the real measure. The rate of growth in mortgage lending is an important indicator of how fast the economy is growing. The recent trend showing a welcome and overdue slowing in demand may now be unfounded, with significant implications for the Government's plans to cut taxes in the coming Budget. The Central Bank's data show that the annual rate of growth in mortgage lending has fallen significantly in recent months to 16.9 per cent in October from 17.9 per cent in September and continues to slow. The bank's figures do not take into account more than €2.5 billion worth of mortgages taken out by Irish residents which were sold on by Irish lenders to foreign institutions. The Central Bank also ignores mortgages taken out by Irish residents with overseas banks. It is estimated that Bank of Scotland has lent more than €400 million since setting up a lending operation in Ireland in 1999.
When these mortgages are added back into the data, the picture that emerges is significantly different. It indicates that mortgage lending is growing at more than 27 per cent per annum, which is close to an all-time high. Lending industry sources estimate that the annual rate of growth in mortgage lending has increased dramatically from September last year, when it topped 25 per cent. The Central Bank mentioned the issue in its recent monthly statistical publication but did not quantify the impact. "Caution needs to be exercised with regard to the annual growth rate series for residential mortgages due to the distorting effect of an increasing number of mortgage securitisations," said the bank.
Mortgage securitisations are now relatively commonplace. Banks and building societies frequently bundle together mortgages and sell them on to other banks and investors. There have been six such deals in the last 12 months, with a combined value of €2.43 billion. This represents a significant portion of the total number of residential mortgages advanced by Irish banks, which is in the region of €30 billion. The Central Bank defended its decision not to include the securitised mortgages in its figures yesterday. A spokesman said that the statistically correct thing to do was exclude them as the bank did not know the mix of mortgages that had been securitised. The mortgage lending figure feeds into the overall private sector credit figure - another very important indicator of the health of the economy. When the securitised mortgages are taken into account, the figure for private sector growth is several percentage points ahead of the 25.8 per cent figure published last week. Lending figures take on considerable significance in the run-up to the Budget as the Government decides on taxation policy. The figures released last week showed a decline in mortgage lending and private sector credit generally. A spokesman for the bank said that it had alerted users of the data to the potential problems with the figures in the information note that accompanied the figures.
