The number of new mortgages issued in the three months to the end of June slumped by 23 per cent, as residential investors shied away from the softening property market.
The latest update of the mortgage market profile series published yesterday by the Irish Bankers' Federation (IBF) and PricewaterhouseCoopers (PwC) shows that a total of 41,151 mortgages were issued in the second quarter, down from 53,449 in the same quarter last year.
This is the second-lowest level recorded since the series started two years ago.
The value of new mortgages issued also contracted, falling by 13.8 per cent year-on-year to €8.7 billion. The buy-to-let segment proved to be one of the weakest links of the mortgage market, as residential investors adjusted to "market realities".
The value of loans drawn down by residential investment letting purchasers fell by 21 per cent to €1.5 billion, the lowest level since the series began.
"The novice investor is pulling back," IBF chief executive Pat Farrell explained. The Irish property market is no longer a "one-way bet" in terms of capital appreciation and rental yield, and in the future will be "underpinned more and more by professional investors able to take a long-term view", he added.
New top-up mortgages - commonly used as a source of finance to buy investment properties - displayed the greatest decline, falling by 23.5 per cent.
Although less pronounced than other sectors, a fall of 11.8 per cent in the value of mortgages issued to first-time buyers was also recorded.
Mr Farrell said the Government's election stamp duty initiative had little impact on the second-quarter figures because of timing. He expects current affordability levels will act as a stimulus for first-time buyers.
Although most segments of the mortgage market displayed a marked slowdown in the second quarter, switching activity (consumers moving their mortgage to another lender) reached its highest level since the series began. Switching accounted for 15.5 per cent of new mortgages issued in the second quarter, as higher interest rates prompted consumers to shop around.
Mr Farrell described the lending levels recorded in the second quarter as "more sustainable", and pointed out that the Republic still has one of the highest growth rates in terms of outstanding residential mortgages in the euro zone.
