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.