New research on 2018 household lending

• Financial Stability Note examines residential mortgage lending under Central Bank’s Mortgage Measures in first six months of 2018
• Value of loans up 22% year-on-year; volume up 15%; and 91% of lending in-scope of Mortgage Measures
• Household Credit Market Report also published – non-mortgaged household transactions falling, but substantial at 29.5% in H1 2018

In a Financial Stability Note, No 8. Macroprudential Measures and Irish Mortgage Lending Insights from H1-2018, Christina Kinghan provides an overview of residential mortgage lending in Ireland in the first six months of 2018. It analyses 17,415 loans originated with six lenders. Following the 2017 review of the Mortgage Measures, an additional refinement to the measures was introduced effective 1 January 2018.

The key findings are:

• The total value of all loans extended over the period was €3.75 billion, up from €3.09 billion in H1 2017, an increase of 22% in value year-on-year. The corresponding increase in volume terms was 15%.
• The average loan-to-value (LTV) of first-time buyers (FTBs) was 79.6% and the average loan-to-income (LTI) was 3.1, relatively unchanged from H1 2017. FTBs had a larger loan size, property value and income compared to FTBs in H1 2017.
• For second and subsequent borrowers (SSBs), the average LTV was 66.9%, a small decrease from H1 2017 (67.8%). The average LTI for SSBs was 2.6 compared to an average LTI of 2.5 in H1 2017. SSBs had a higher property value in H1 2018 and the average borrower age increased from 41 to 42 years old.
• The average interest rate for FTBs was 3.1%, down from 3.4% in H1 2017. For SSBs, the average interest rate was also lower in H1 2018 at 3%.
• Allowances for the LTV limit reached 16% of the aggregate value of new lending for SSBs (20% of new lending is allowed per institution). Only seven loans to FTBs exceeded the LTV limit in this period (5% of new lending is allowed per institution).
• 23% of the value of total FTB lending exceeded the 3.5 LTI limit between January to June 2018, compared to 24% in H1 2017¹. 9% of the value of total SSB lending exceeded the 3.5 limit in H1 2018.  Respectively, 20% of the value of new FTB lending and 10% of the value of new SSB lending are permitted to exceed the 3.5 LTI limit per institution in any given year. (The 23% reflects the aggregate figure across all institutions for a six month period only. Allowances are assessed per institution and over a 12 month period.)

The Central Bank has also published its Household Credit Market Report for 2018, providing an up-to-date picture of developments in the household credit market in Ireland. Among its findings, the report records that:

• Household debt-to-disposable-income (DTI) declined to 133.3 in Q1 2018, reaching its lowest level since Q1 2004. However, Irish households remain the fourth most indebted in the EU.
• In Q2 2018, the share of new fixed rate lending continued to rise. Fixed rates of 3 years and over represented 48% of new primary-dwelling-house (PDH) lending and those of 1 – 3 years accounted for a further 26%.
• In H1 2018, the average loan size for new FTB lending in Dublin was €273,953 compared to €185,987 for FTBs outside Dublin, while average incomes were €85,334 and €66,728 respectively.
• Almost 50% of new FTB loans by number had a loan term of between 30 to 34 years. For SSBs, 50% of loans had a term that was under 25 years.
• Approximately 35% of purchases by FTBs were for a newly constructed property in Q2 2018, in comparison with 28% for SSBs. The highest share of new properties for both FTBs and SSBs was in Q1 2008, where 64% of purchases by FTBs and 61% of purchases by SSBs were for a new property.
• The share of non-mortgaged household transactions continues to decline but remains substantial at 29.5% in H1 2018 (based on market value for households only), down from 44.2% in 2015.
• The share of PDH loans in negative equity has fallen from a peak of 36.2% in Q4 2012 to 7.3% in Q4 2017.
• The number and share of loans in arrears continues to fall. 63,402 loans were in arrears of over 90 days in Q2 2018, down from 72,610 in Q2 2017.

Notes

The views presented in Financial Stability Notes are those of the authors alone and do not necessarily represent the official views of the Central Bank of Ireland.

¹See Table F1: Review of residential mortgage lending requirements