The emergence of cheaper home loans has intensified competition in the €39.9 billion mortgage market with new data showing the value of mortgages switched between lenders rose to a record high in the final quarter of 2006.
Homeowners who moved their mortgage to a new lender made up more than 16 per cent of the market - a larger slice than ever before, according to new figures from the Irish Banking Federation (IBF).
But despite the record €1.7 billion climb in the value of switching business in the last three months of 2006, the overall mortgage market shrank as uncertainty about changes to stamp duty prompted people to delay buying property and contributed to a €620 million fall in the value of new mortgage business.
The mortgage market is no longer growing on an annual basis, with the value of new lending in the final quarter standing at €10.3 billion, the same as in the fourth quarter of 2005.
IBF chief executive Pat Farrell attributed the flat market growth to first-time buyers feeling the pinch of six interest rate hikes between December 2005 and December 2006.
First-time buyers are being steadily squeezed out of the market, the figures show.
The number of first-time buyers taking out new mortgages in the final quarter of 2006 slipped to 8,984 compared to a figure of 11,284 in the final quarter of 2005.
The €2.2 billion in new loans advanced to first-time buyers in the fourth quarter means that their share of the market is just shy of 21 per cent, down from a share of 23.2 per cent in the same quarter in 2005, when first-time buyers borrowed €2.4 billion. However, average loan sizes are still increasing in all categories.
Mr Farrell said people should not be influenced by speculation about stamp duty in their decision to buy property.
"If you have established in your mind that the time is right to buy a house and you can get the finance - buy."
Predicting more competition for switchers' business in 2007, he said the mortgage market was entering a new phase in which established homeowners who have built up equity in their homes would be the target of offers and counter-offers from lenders.
Earlier this month, AIB responded to the launch of cheap mortgages by National Irish Bank (NIB) and Halifax by cutting the interest it charges on mortgages worth less than 80 per cent of the value of the property, with the lowest rates available to borrowers whose loans are less than 50 per cent of the property value.
NIB has reported processing €500 million worth of loans in the eight weeks following the launch of its switcher mortgage in October.
But it is likely that some borrowers who told their existing lender that they were moving their mortgage were offered a lower interest rate as an incentive to stay with the lender.
Davy Stockbrokers banking analyst Scott Rankin said yesterday that many lenders were "pursuing a policy of not losing customers", with the stronger competition forcing them to lower their margins on new loans.
More people remortgaged in the last three months of 2006 than took out a loan to buy an investment property, but demand for investment properties remains high, despite predictions that growth in house prices will fall to 3-6 per cent this year.
"Investors are confident about the market, which is being underpinned by demand from migrants for rental accommodation," Mr Farrell said.
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