Despite spiralling house prices and Government efforts to thwart private investors from speculating in the residential property market, the demand for mortgages remains exceptionally strong. Irish Permanent, the State's largest mortgage provider, continues to be a major beneficiary and has managed to increase its share of the market to around 21 per cent, according to chief executive, Mr Roy Douglas. Last month, the group processed its highest level ever of mortgage applications as the demand for housing continued to strengthen. Property investors have stepped back somewhat, accounting for around 4 per cent of all mortgage applications at Irish Permanent last month, down from around 15 per cent in the previous months. Mr Douglas noted, however, that where investors had shied away from chasing residential property, first-time buyers are now taking up the slack.
Against this background, Irish Permanent is looking forward to another strong performance in the second half of 1998 and in the longer term. Mr Douglas insists that the demographics of the Irish economy and the large number of younger people who will be forming households in the years ahead will underpin sustained demand for housing in the Irish economy for the next five years at least. With mortgage lending at the heart of Irish Permanent's business, this is all good news for the group. But it does remain concerned about the difficulties faced by first-time buyers in getting into the housing market. In spite of the rapid rise in house prices, particularly in the Dublin area, Irish Permanent has stressed that it has not relaxed its lending criteria.
Beyond mortgage lending, the group has managed to boost income from its subsidiary operations, with sales of life products and car finance showing a significant increase in the six-month period. Some 90 per cent of Irish Permanent's income comes from the domestic market, with the remainder contributed by its operations in Britain and Isle of Man.
Over the coming months, the group will be turning its attention to the acquisition of the State-owned ICC Bank. Mr Douglas has reaffirmed the group's interest in the bank, stating that that it intends to be in there "fighting" off its rivals in the tender process.
The bank, which is expected to realise more than £200 million for the State, is being keenly sought by almost every Irish financial institution. The acquisition would be a boost for the Irish Permanent and would secure a significant slice of the small to medium-sized business sector for the group - an area in which it has little presence at the moment.
In the interim, Irish Permanent is closely watching moves in Irish interest rates which are expected to fall by up to two percentage points by year-end. The Central Bank has been maintaining short-term interest rates at relatively high levels compared with long-term rates in a bid to keep a lid on inflation. Mr Douglas suggests the Central Bank is now likely to hold off for as long as it can before lowering short-term interest rates - the rates which determine bank and building society interest rates to customers. By year-end, he believes these rates will have to fall, but insists that deposit rates will not fall to the same extent as lending rates. This time next year he believes the average variable rate mortgage could fall to levels of between 5.75 per cent and 6 per cent from around 7 per cent now.
