The growth in the number of Irish mortgage approvals for house purchase fell sharply in April 2015 with the number down on the previous month but up over 11% on April 2014 compared with a growth of almost 41% in Q1 2014. The value of approvals also slowed.
On Thursday the CSO reported that in the month of April residential property prices rose by 0.6% nationwide. Residential property prices remained up 15.8% on an annual basis. In Dublin residential property prices rose by 1.0% in April. Dublin residential property prices were 20.2% higher than in April 2014.
Conall Mac Coille, chief economist at Davy comments: "New data from the Banking and Payments Federation, released this morning, show that there were €391m mortgage approvals for house purchase in April 2015, down from €424m the previous month. The value of mortgage approvals in April was still up 12.0% on the year, but this is a sharp slowdown from the 60% growth rates recorded in Q1 2015. The annual growth in mortgage approvals in April was the weakest since December 2013.
In volume terms, mortgage approvals were 2,070 in April – down from 2,228 in March. This means the number of approvals is up 11.4% on the year but slowing from the 40.6% annual growth in Q1 2015. The average loan approval was €188,900, down from €190,300 in March and €195,650 on average through Q1 2015.
This is the first time the level of mortgage approvals has fallen back in the month of April since the series began in 2011. Normally, the first quarter represents a seasonal soft patch in lending – with mortgage approvals picking up through the year. Figure 1 shows that if the April figure is repeated in May and June, there will be €1.173bn of mortgage approvals in Q2 2015, down slightly on the first quarter for the first time since 2011.
One obvious explanation for the weak April data is that the negative impact on lending from the Central Bank’s new limits on loan-to-value (LTV) ratios is starting to be felt. Our estimate is that 28% of mortgage loans in 2014 would have breached these limits, well in excess of the 15% allowed to do so. That said, half of the 28% were first-time-buyers who would have faced only a small reduction in their LTV ratio of less than 3%. It could also be that mortgage approvals and lending were rushed before the new rules came into force.
Our forecast was for mortgage lending to equal €4.5bn in calendar year 2015. We already know lending was still strong in Q1 2015 at €918m, up 70% year-on-year and broadly consistent with our forecast. However, the April mortgage approvals figures show little sign of the normal seasonal pick-up in the second quarter. Unless approvals start to pick up through May and June, we will have to revise down our forecast for mortgage lending in 2015 towards €4bn.