Mortgage lending rate fastest since 2000

Mortgage lending grew at a faster rate in July than at any point since the end of 2000, according to the latest credit figures released by the Central Bank.The monthly statistics show that residential mortgage credit surged by 24.2 per cent in July when compared to the same month of 2002.

The growth rate, which has been adjusted for securitisations, comes after expansion of 23.9 per cent in June and 23.6 per cent in each of the previous three months.

Total lending to Irish residents jumped by €2.3 billion to €150.2 billion in July. Within this, residential mortgages increased by €1.3 billion, while other mortgages climbed by €143 million.

The Central Bank acknowledged that demand for residential mortgages was "the main driving force behind credit growth".

The Bank does not provide a breakdown on the type of mortgages advanced by financial institutions but it is thought that in the region of 15 per cent of all new residential homeloans are being advanced to investors.

The continued strength in the market is likely to be the source of some disquiet for the Bank's governor, Mr John Hurley, who has repeatedly voiced concerns over the sustained high demand for homeloans over a period where the economy has slowed.

In the same vein, the financial sector's regulator, the Irish Financial Services Regulatory Authority (IFSRA), wrote to banks and building societies about their lending practices earlier this month and is expecting responses from the institutions over coming weeks.

The correspondence follows individual inspections by IFSRA officials who have explored areas such as lending multiples and affordability.

NCB chief economist Mr Dermot O'Brien was less uneasy about the credit growth yesterday, expressing no surprise or concern at the July numbers, which he said reflected the underlying strength of the economy.

"If you think about it, the unemployment rate is very low so most people have jobs and most people have security," he said, pointing to Thursday's jobs numbers which showed that total employment rose by close to 30,000 in the year to April.

Mr O'Brien said the residential lending market had been supported by low interest rates and demographic trends.

He said the economy's health was also evident in figures for non-mortgage credit, where annual growth rose from 8.2 per cent in June to 9.6 per cent in July. Overall private-sector lending expanded by 14.6 per cent over the month, a level showing some moderation on growth recorded earlier in the year.

Detail contained within the Central Bank figures shows that the value of overdrafts and loans extended by financial institutions was broadly unchanged in the year to July, while repurchase agreements fell by €172 million.

The amount of money held in most deposit categories also fell, but balances in current accounts rose by €531 million. Special Savings Incentive Account balances were €129.9 million higher at €2.5 billion.