Household demand for credit has recovered since onset of pandemic but remains below 2019 levels

• Mortgage approvals drop 11% year-on-year in August, up from a 62% drop in May.
• Household use of overdrafts down 25% year-on-year from May to August.
• Some households may require additional tailored supports as payment breaks expire.

The Central Bank has today published a special edition of the Household Credit Market Report 2020 (HCMR), providing information on the household credit market since the emergence of COVID-19.

COVID-19 represents a substantial shock to households and the economy.  During the initial period of restrictions, over a million individuals in the labour force were in receipt of state income support and close to a fifth of all households reported lower income.

The HCMR provides an up-to-date picture of developments in the household credit market in Ireland. The key findings of the report are as follows:

• Household demand for mortgage and consumer credit dropped in the initial phase of the pandemic before recovering but remains below 2019 levels.
• Year-on-year there was a drop of 11% in mortgage approvals by volume in August 2020, an improvement from May when approvals were 62% lower.
• Regional shares of new mortgage lending held broadly stable in H1 2020, despite differing regional COVID-19 employment effects.
• Households’ usage of overdrafts has been around 25% lower year-on-year each month between May and August 2020.
• Those borrowers working in the most directly affected sectors have smaller mortgages, lower incomes, but higher debt-to-income ratios at the median, suggesting heightened vulnerability to the economic effects of the pandemic.
• In early September, 6.1% of Irish PDH mortgages and 4.3% of consumer loans were on a payment break. Close to half of Irish PDH mortgage borrowers opting for the first three-month payment break did not require extension.

The HCMR presents granular detail on the allocation of new mortgage credit in the first half of the year. Despite the pandemic, Loan To Value (LTV) and Loan To Income (LTI) ratios were consistent between Q1 and Q2, as were borrower incomes, demographics, property sizes and loan terms – although a portion of this lending would have approval predating the pandemic.

The HCMR commented that mortgage payment breaks were most common among loans with a previous modification (40%).  In addition, counties with high rates of pandemic unemployment payments (e.g. Kerry, Donegal) and Dublin commuter counties (many mid-2000s mortgages) had higher mortgage payment break shares.  Loans issued since the introduction of the mortgage measures in 2015 were less likely than the average mortgage to be on a payment break. Both first-time-buyers (FTBs) and second-time-buyers (SSBs) with high origination loan-to-income ratios had a higher propensity to be on a mortgage payment break.