Are we taking one step forward and two steps back?

We all require credit at some stage of our lives.

Whether it’s to buy that car you need to get to work, to take that year out to see the world or to set up your own business, chances are you will need a loan at some point.

The vast majority of those loans come from banks but are our financial institutions lending at the moment, particularly when it comes to mortgages?

Well, the answer to that question varies depending on who you speak to.

The banks themselves insist they are open for business and have money to lend. That story is certainly backed up by yesterday’s figures from the Irish Banking Federation, which showed that there were 1,677 mortgages approved in October – up 10.3% on the previous month and 26.9% on the same time last year.

What it doesn’t tell you, however, is that the rate of mortgage approval and drawdown is still at its lowest level since the 1970s.

No one wants to return to the situation we found ourselves in around six years ago where €3 of every €5 borrowed from banks went towards property. However, almost all economists would agree that a healthy economy requires a healthy property market.

We’ve seen some positive steps this year towards returning to the point of where the market should be. The latest figures from the Property Price Register show that there have been 18,390 transactions recorded so far this year, up to and including November 16th.

That means we have surpassed last year’s overall tally of 18,033 transactions.

Whether that sort of steady progress continues into 2013 or not remains to be seen. The abolition of the mortgage interest relief scheme on December 31st will have an impact you’d imagine, as will the introduction of a property tax.

The banks, while making good progress in dealing with their problems, also haven’t dealt with the number of people in mortgage arrears and there are fears that mortgage losses at the main banks could rise depending on the impact the new insolvency legislation has.

Perhaps the biggest issue though surrounds those who are simply getting by at present. The people who bought apartments or smaller homes in the boom are unable to upgrade to units more suitable to their present needs.

As a result the natural progression has stalled with people stuck in homes no longer suited for their needs as they settle down, start families etc.

There is a large proportion of people stuck in such a position and saddled with negative equity. Until a solution – one that is open to the majority rather than the minority – is found for their problems the market will only ever make a slow recovery at best.

You see, the banks might say they are lending but whether it because of a low level of interest from people looking for loans or because there are more hurdles being put in front of them, the reality is they’re not. Or at least not enough.

No one is suggesting that we go back to boom levels of lending but a sustainable level for a country of Ireland’s size would be in the region of €5 to €10 billion per year.

Yes, we’ve made small steps of progress this year but until our banks sort themselves out, the property market and, indeed, the economy will find itself often taking one step forward and two steps back.

There are 6 comments for this article
  1. Liz Fitzsimons at 12:51 pm

    I must agree with Heike about the banks criteria. It is beyond a joke we were told we could not afford a mortgage even though we are putting 60% cash and 40% mortgage are paying 1100 rent and they say we cant afford 800 a month,the term is only 8 years they blame the Central Bank and the bank say what if my husbands job should get into trouble?… Well here is the biggest joke of all he works for the Central Bank……….. There is just no hope for this country if that is the way Banks are treating loyal customers of 35 years and from Rathfarnham as their Ads on the T.V. say well I am that Customer and this is the way they treat us after we the tax payer bailed them out.

  2. John at 11:52 pm

    An auctioneer is always looking to get the highest price – it’s the way they work

  3. Indianapolis Colts’blog at 8:43 am

    It’s my opinion that a home foreclosure can have a significant effect on the borrower’s life. Property foreclosures can have a 7 to 10 years negative impact on a borrower’s credit report. The borrower who may have applied for home financing or any loans for that matter, knows that the worse credit rating is definitely, the more complicated it is to get a decent financial loan. In addition, it can affect the borrower’s capability to find a decent place to lease or hire, if that becomes the alternative real estate solution. Interesting blog post.

  4. Heike at 8:20 pm

    Banks say they are lending, but their criteria are ridiculous…
    Asked for 80k mortgage a week ago and was given quote for repayments at 450 Euro/month, but told we don’t meet their criteria, as we wouldn’t have enough left to live after paying mortgage. I’ve showed them that we’ve built up our savings over the last 10 years while paying 1200 Euro rent per month and buying 2 new cars cash, but they insist we can’t afford a 450 Euro mortgage per month! That’s just nonsense…..

  5. Common Sense. at 4:41 pm

    Well put Patrick.

    “exporting yet again our most precious young brains all over the world” hits the nail on the head.

    The hideous incompetence of estate agents is more than enough to convince that the country is run by idiots without the sense to help themselves, never mind the rest of us.

    Rather set up to advertise incompetence, a particular effect is to deter a buyer abroad, otherwise keen to invest, hence the lack of local intelligence as well as the money the country lacks.

  6. Patrick at 11:23 am

    The statistical changes last vs this year pale into insignificance when related to what was or should I say was not happening in 1977. It was then as it is now a defunct little country,exporting yet again our most precious young brains all over the world. Unlike the 40s/50s/60s/70s when we sent our young with their passage paid a spade/mop,we have at least educated them now, and they have a better grasp of the outside world and God knows we can only wish them the very best. Getting back to the Banks.No doubt they will sort themselves out first…this is always the priority whatever the circumstance. They say there is funding available , agreed, but to whom. The lending criteria is such at the moment that it precludes most of our would be borrowers, and therefore stifles any possibility of renewal in the housing market. I am not advocating we revert to boom time lending madness,but in the circumstances we find ourselves,a little prudence could be the order of the day.Just one final thought on 1977 Did our political whizz kids of that era abolish the household rates ?? and it is thought that some party or other is saying we do not need to introduce household retes, and more to the point Berlin is not insisting we have to. Now this could be something for our editor for another time.

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