Una McCaffrey

The residential mortgage market will grow by 13 per cent this year, despite a decline in new house completions, a fall in second-hand volumes and concerns over mortgage affordability, according to new forecasts from Merrion Stockbrokers.

The broker has raised its 2004 mortgage lending growth forecasts from 9 per cent to 13 per cent in light of strong loan pipelines among the main lenders and expectations of a continued low interest-rate environment.

Analyst Mr Seamus Murphy, also pointed to a stabilisation in Irish home-bond registrations - a proxy for housing starts - as a sign that the mortgage market would be underpinned. Against this backdrop, he expects loan-to-value ratios to change little this year.

Mr Murphy sees mortgage growth being maintained as gross lending declines by 10 per cent.

His research has led him to raise his 2005 forecasts for the main listed financial stocks , most of which rely on mortgages for a proportion of group profits, by up to 2 per cent.

This year's forecasts have been left unchanged because new lending does not make a positive contribution to profits until year two.

Mr Murphy estimates that AIB takes 5 per cent of group profits from mortgages and Bank of Ireland 6 per cent.

Irish Life and Permanent generates some 22 per cent of profits from mortgages, according to Mr Murphy's calculations.