The demand for residential mortgages continued to rise rapidly in May, with the Central Bank recording a 24 per cent increase for the third successive month.
The sustained strong demand for mortgages is a concern for the Bank, which last week noted that many financial crises were preceded by rapid loan growth and asset-price escalation.
However, figures from the State's largest lender, Permanent TSB, show that mortgage demand and house prices are unlikely to ease in the coming months.
Late last month the Governor of the Central Bank, Mr John Hurley,said the Bank was disappointed that the rate of growth in mortgage lending had not slowed in the light of weaker economic growth and a decline in income levels. The Bank is examining the lending policies adopted by Irish banks and building societies to ensure that customers are not taking out loans they will have problems repaying.
Permanent TSB's marketing manager, Mr Niall O'Grady, said last night that the volume of new mortgage applications to date in 2003 was significantly up on last year, driven by low interest rates.
A spokesman for the EBS Building Society, Mr Pat Farrell, said demand for mortgages would continue to be strong for the rest of the year, with first-time buyers to the fore. This demand is fuelling a faster than expected rise in house prices, according to Permanent TSB, with its monthly survey showing that the cost of homes rose 14.1 per cent in May compared to May 2002.
It has also raised its forecast for the overall increase in house prices this year from single-digit growth to a rise of anything up to 13 per cent.
The Central Bank said the total amount of money lent out in mortgages to customers of Irish banks and building societies rose by €942 million in May.
Credit growth figures compiled by the bank reveal that the demand for all types of loans rose by 16 per cent in May, fractionally below the 16.1 per cent rise recorded in April.
In its annual report, the Bank said the key challenge facing the financial services industry in the current economic environment was to maintain high lending standards while at the same time meeting market expectations on profitability.
The report also noted that experience would suggest that the consequences of a bust in house prices would inflict double the damage inflicted by an equity price bust.
The demand for other loans eased marginally in May to 11.2 per cent from 11.3 per cent in April.