THE FLOW of credit to businesses and households is continuing to dry up, while the rate of mortgage repayments has fallen.

The latest quarterly update from the Irish Banking Federation (IBF) shows that new mortgage lending plummeted by 40 per cent in the third quarter, with just 7,261 mortgages issued, compared to 12,189 in the same period a year earlier.

Meanwhile, new Central Bank statistics show that overall lending to Irish households declined by almost 5 per cent in October.

This follows a fall of 4.5 per cent in September.

Lending to non-financial corporates – ie, businesses – contracted by 5.2 per cent in October, compounding a decline of 3 per cent the previous month.

Analysts at Davy stockbrokers expressed concern at the low rate of mortgage repayments indicated by the two sets of data released yesterday.

By reconciling the IBF lending figures with the Central Bank’s mortgage balances, Davy concluded that mortgage repayment rates fell by 6 per cent in quarter three.

Although the stock of household debt was €174 billion at the end of October, some €15 billion below its peak at the start of 2009, this reduction was the result of limited appetite for new credit rather than an increased rate of pay-down, it said.

“Limited pay-down of debt is a concern, particularly for tracker mortgages . . . due to the resultant squeeze when [ECB] base rates eventually rise,” it said.

The warning came after IMF economist Ajai Chopra was reported to have said the Irish mortgage pool will have to be closely watched to ensure that those on tracker mortgages are able to afford higher interest rates in the future.

The IBF figures showed first-time buyers remained the largest segment of the new mortgage lending market, with 41 per cent of loans going to this category.

The mover-purchaser segment grew to 26 per cent of the market in the third quarter.

The residential investment letting and remortgage categories continued to shrink, representing just 3.5 per cent and 8 per cent of new loans, respectively.

The Central Bank money and banking figures for October showed that lending for house purchases in October was 1.6 per cent lower, but lending for consumption and other purposes was 16.3 per cent lower in the year, with the consumer element down 14.9 per cent.

Deposits from the Irish resident sector were 4.1 per cent lower on an year-on-year basis in October.

Chief economist of Bloxham stockbroker Alan McQuaid commented that the Central Bank figures contained “very little good news”.

“The annual rates of decrease for the main loans to the household sector continuing to rise in October, and [there is] no sign the trend will change any time soon,” he said.

“Until the banking sector crisis is fully resolved and things improve on the labour market front, the supply/demand for credit will remain subdued in our view,” he added.