Strong demand for credit pushed borrowing to a new high of €315 billion in November, according to the latest figures released by the Central Bank. Caroline Maddenreports.
However, a breakdown of this total revealed that residential mortgage borrowing growth eased to its slowest rate in more than a year, signalling that the property market may finally be cooling.
The figures show that while mortgage borrowing growth may be easing, the amount of borrowing done by people with credit cards continues to rise and concerns over the levels of debt per household persist.
The level of residential mortgages held by Irish households rose by €2.1 billion last month, bringing the total to €121 billion. Despite this increase, the annual growth rate slipped to 25.8 per cent, the lowest rate recorded since October 2005.
This confirms a trend that has been emerging over the past six months, according to Jim Power, chief economist at Friends First. "Affordability is under pressure, particularly for first-time buyers; interest rates have risen by 1.5 per cent since last December."
All of these factors are beginning to have an impact on peoples' ability to borrow enough to buy a house, he said. "This is definitely leading to some slowdown in borrowing for house purposes."
The figures are consistent with a gradual "soft landing" for the property market, Mr Power said. "The level of activity [ in the market] is still pretty vibrant. It's just losing heat." He added that the figures are also consistent with the Permanent TSB/ESRI findings released earlier this week which showed that house price growth virtually ground to a halt in November.
An upward move in mortgage lending may emerge in the first quarter of 2007, Mr Power predicted. First-time buyers, who may have held off in anticipation of a possible stamp duty amendment in the Budget, are expected to enter the market in the coming months.
Despite this potential blip, mortgage credit growth is likely to drop to about 19 or 20 per cent by the end of 2007, which would be "extremely desirable", Mr Power said.
The Central Bank's figures indicated that overall private sector credit growth increased by 27.8 per cent last month, up slightly from October. The annual growth rate in the non-mortgage market remained particularly strong, reaching 30.6 per cent.
Within this sector, the Central Bank reported that lending to non-financial corporations experienced the largest monthly increase since March of this year. However, lending to financial companies weakened somewhat during the month, the bank said.
The annual rate of credit card borrowing climbed to 17.2 per cent last month from 16.4 per cent in October. This brought the total level of credit card indebtedness to €2.58 billion.
Term loans increased by €3 billion during the month.