Consumers have shrugged off rising interest rates and continue to borrow record amounts to buy houses, writes Marc Coleman, Economics Editor
The total borrowings of current and would-be home owners topped €100 billion for the first time ever last month, despite two interest rate rises since last December, the Central Bank said yesterday.
Monthly lending figures released by the bank also showed that mortgage lending grew at a record rate last month. The actual amount borrowed, €2.1 billion, was the third highest monthly figure on record, said the bank.
The mortgage borrowing figures follow data released on Thursday showing the annual rate of house price inflation in the 12 months to March accelerated to 12.2 per cent, compared with 11.1 per cent in the 12 months to February.
"Irish consumers continue to borrow and spend money as if there is no tomorrow, which may be fine in the short-term, but can only be bad news in the long-run," economist Alan McQuaid of Bloxham stockbrokers said yesterday.
The continuing high level of borrowing is despite the European Central Bank's (ECB) decision on March 2nd to raise its key rate of interest by one quarter of a percentage point.
Yesterday's Central Bank data also showed that consumers continue to borrow heavily for items other than house purchases. More than €1.3 billion was advanced by banks last month in non-mortgage lending. New spending on credit cards also gathered pace in March, rising by €981.4 million compared with an increase of €870.9 million in February.
Rossa White, an economist with Davy stockbrokers, said that several factors were helping borrowers to shrug off the impact of higher interest rates. "For households, Special Saving Incentive Account (SSIA) windfall gains and tax cuts are trumping higher debt repayments in 2006."
But Mr McQuaid predicted that interest rates and higher oil prices would impact on borrowing growth later this year.
"We think it is only a matter of time before we see some belt-tightening. Even though the maturing SSIA money will act as a buffer over the next year or so, increased energy costs and rising rates will eventually take their toll in our view."
But he added that borrowing growth would still be running at "about two to three times the expected euro zone average".
A recent survey by Irish Intercontinental Bank (IIB) and the Economic and Social Research Institute (ESRI) found that consumers' worries about the economy increased significantly in March, in the wake of the interest rate increase as well as news coverage of prominent lay-offs.
Total private sector credit reached €271.4 billion last month, compared with €85.8 billion in March of last year. Lending to the private sector grew by 29 per cent in the 12 months to last March. Although the lowest rate recorded in almost a year, this rate would have been higher but for a once-off fall of €1.1 billion in borrowing to non-bank IFSC companies.
The monthly increase in lending of €3.5 billion was dominated by a rise of €2.1 billion in residential mortgage lending. The level of outstanding mortgage credit in the economy now stands at €100.1 billion and is 29.8 per cent higher than in March 2005.