Trends in the mortgage market are a cause for concern. Despite more moderate rates of economic growth, mortgage lending continues to increase rapidly, with the latest figures showing an annual increase of almost 25 per cent in September.
Much of the rise in outstanding mortgage debt in recent years reflected the underlying improvement in the economy and income levels, but the continued acceleration in lending growth as the economy returns to more normal growth rates, is surprising.
The Irish Financial Services Regulatory Authority - IFSRA - yesterday announced the results of a survey of mortgage lending practices. Overall there was no risk to the soundness of the financial system, it said, but lenders needed to tighten up on their assessment of prospective borrowers. It did not identify the institutions which it believes have been lax in respect to issues such as getting concrete evidence of customer income levels and other borrowing commitments.
The financial regulator, of course, has to go through the detailed examinations with each institution. However it has been clear for some time that many of them were only too happy to lend ever-larger amounts, as they sought to build their share of the market. This has contributed to a dangerous spiral of rising debt levels and increasing house prices, which may no longer be justified by economic fundamentals.
Had there not been such political dithering about the setting up of IFSRA, this issue may have been addressed earlier from a regulatory viewpoint. As it is, the momentum of borrowing is strong and will take some time to rein in.
The Central Bank's regulation has always focused on the underlying financial solvency of the banking system, which is unlikely to be threatened, barring a major setback to the economy. However the new regulator has a brief to safeguard consumer interests.
It is essential that its links with the Central Bank do not retard it from undertaking this task and that it speaks clearly in favour of consumers, even if this upsets the financial institutions from time to time. The regulator has to tread a careful line, of course, but if it is concerned about lending trends - and the indications are that it is - then yesterday's statement puts it in a very genteel fashion.
Naturally borrowers must also take responsibility for their own financial actions. It is essential, with interest rates at historic lows, that they consider the impact on their budget of a rise in borrowing costs. The Bank of England may become the first of the major central banks to reverse the interest rate trend and announce an increase next week and while a rise here is not imminent, it will come. Recent encouraging signs of economic recovery and the likely moderate interest rate trend may support the market over the next couple of years. However a sharp deceleration in the growth of mortgage lending would now be appropriate.