Interest rate hikes put the brakes on house spree

The_Conductor

From today's Irish Indo:

New figures indicate a majorslowing down in the market

THE first indications that the housing market is slowing down have emerged in dramatic new figures.

They show the rapid rate of growth in the mortgage market has begun to tail off as interest rate hikes begin to bite.

The number of home loans issued continues to increase, but the rate of increase has fallen back significantly.

The development could herald the soft-landing for the housing market that home buyers and policy makers have been seeking.

Just 13 more first-time buyers took out a mortgage in the months of April, May and June this year than did in the corresponding three months last year.

And there was a fall in the numbers taking out a new mortgage to trade up to a bigger house and in the numbers re-mortgaging to benefit from a cheaper home loan.

Up to now, the number of new mortgage approvals has been breaking records each month.

Now commentators say interest rate hikes are showing signs of impacting.

The rate of increase in the value of home loan transactions is also slowing down. Mortgage rates have increased four times in the past nine months with another two rate rises expected before the new year.

The rises have so far added 1pc to interest rates.

The last rise was in August, but experts say the cumulative effects of the previous ones is beginning to have a dampening effect on the mortgage market.

In the first three months of this year, the number of new home loans issued surged by 19pc.

However, for the months of April, May and June the rate of increase was down to just 2pc.

The figures come from a new detailed quarterly analysis of the mortgage market by the Irish Bankers Federation and PricewaterhouseCoopers.

The indications of a slowdown in mortgage approvals tallies with recent house price figures. In July house prices rose just 1.1pc - a reduction in the rate of growth for the third successive month, according to Permanent TSB/ESRI.

The number of mortgage transactions is currently running at 800 per working day, but the market may have peaked.

Around 100,693 mortgages were taken out in the first half of this year.

Consumer champion Eddie Hobbs said: "I am not surprised by these new figures because there is already anecdotal evidence that the market is cooling down."

He said interest rates had risen by 1pc in recent months while house prices had continued to rise.

This had put a squeeze on the ability of first-time buyers to raise more money.

Analysts say the rapid fall across all sectors of the mortgage market may be the first sign that higher interest rates are beginning to bite.

The market may have been sustained by the move to longer term mortgages of 35 or even 40 years.

But that effect may now have run its course, and even longer loans would make little difference to repayments, even if they were on offer from the banks.

Yesterday, the German Bundesbank, the biggest central bank in the euro system, signalled that ECB rates might continue rising next year, which could bring them to 4pc.

"Recent developments have been positive but the inflation risks are such that . . . further action over and above that envisaged in our main scenario could well be warranted," Axel Weber said.

He was responding to a question about the prospect of rates hitting 4pc in 2007.

RATE RISE THREAT, BUSINESS

EDITORIAL COMMENT,

Charlie Weston and Brendan Keenan

The_Conductor

And another article predicting 3.5% by years end and 4% by mid 2007.

Here