If today’s mortgage drawdown report from the Bank Payments Federation of Ireland tells us anything, it is that mortgage lending is extremely fragile in Ireland.
Compared to both 2018 and 2019, this year, in Q2, the level of lending is subdued. This might be explained away by the difficulty buyers might have encountered visiting and selecting suitable properties to purchase. However, while there may be some traces of recovery, the overall picture for mortgage lending in Ireland is that it remains weak.
As it stands, even if there is a very substantial increase in overall lending in the Irish market in H2, the total amount of lending might match or slightly exceed 2018 and 2019 levels at best. This also means that lending activity in 2021 could just about match the level of activity in 1991 or 1993.
Looking at the Irish Census data from 1991, Ireland had approximately 3.5 million people living in the country. Today, that population is closing in on the 5 million mark. In that 30-year timespan, the population has grown by a whopping 43%. Additionally, family size has decreased and there are higher rates of family separation – all of which contribute to greater natural housing demand. But, over that same period of time, mortgage lending has broadly remained flat.
Notwithstanding the mortgage lending surge of the early-to-mid 2000’s, mortgage lending today is far off where it needs to be. If we assume the level of lending activity in the late 1980’s to early 1990’s was broadly sustainable, then using the level of lending activity in that period as a guide, it means that lending would need to be at least 40% higher today in terms of units drawn down just to meet sustainable demand.
Unfortunately, mortgage lending prospects are less optimistic. With the impending departure of both Ulster Bank and KBC from the Irish market, overall lending may fall further. To make matters worse, new entrants that operate primarily through the broker channel are generally less inclined to lend in non-urban areas. Whether or not this approach adapts to meet the massive changes taking place with Covid-driven work-from-anywhere trends remains to be seen. For now, with fewer lending opportunities for would be buyers, it means that a greater proportion of would-be borrowers will be unable to access credit for a home purchase.
What Ireland needs now is some amount of firm intervention at State level. The setting up of a State bank with the sole responsibility to either underwrite, guarantee or purchase mortgage loans (off the books of commercial banks) would be one way of supporting the overall population to access mortgage credit.
Buying a home is one of the primary pillars to building financial resilience and protecting one’s long-term financial wellbeing. While the private sector lenders have provided a significant lending platform through which families have traditionally been able to access credit, today, it seems that model requires a significant shakeup. Without it and driven by commercial pressures and constrained by a range of capital and lending restrictions, private sector lending is limited in what it can deliver.
Frank Conway is the Founder of MoneyWhizz.