Irish Banks: Mortgage drawdowns hit €8.7bn in 2018

29 Jan 2019

Data released from the Banking and Payments Federation of Ireland (BPFI) this morning show that residential mortgage drawdowns came in at €8.7bn in 2018, bang in line with our forecast for the year (and in-line with market expectations), and the highest annual outturn since 2008 (€23bn).

Q418 saw €2.6bn in drawdown activity, an +11.2% increase on Q318 and an +18.2% increase on Q417. The full year outturn of €8.7bn was +19.7% over 2017. First time buyers (FTBs) represented 48% of all drawdown activity, with trader-ups at 32%, re-mortgaging (switching) at 14%, BTL at 2.5% and top-up (home equity release) at 2.5%. Excluding switching/re-mortgaging, newly constructed homes represented 32% of drawdown activity, with the remainder being second hand homes.
 
The total number of mortgages came in at just over 40k for 2018, a 15.5% increase y/y and the highest level since 2009 (c.46k), while the average loan was c.€217k, +2.5% vs 2017. In terms of the pipeline of mortgage demand for 2019, total approvals for 2018 hit €10.1bn, +9% vs 2017, and again bang in-line with our forecasts.
 
The strong correlation between approvals and 12 month forward mortgage demand supports our expectation of just over €10bn in mortgage drawdown activity in 2019, which though still representing solid annual growth (+15%) vs 2018, would also imply a slight deceleration and moderation in growth vs the last few years. We put this down to the moderation we expect to see in Irish property price growth in the next few years, but also from the impact of the Central Bank of Ireland mortgage lending restrictions which are curbing mortgage demand in some segments of the prime Dublin property market in particular. It is notable in this regard that for both drawdowns and approvals, we continued to see strong growth in average mortgage values in 2018 for first time buyers (+7.4% by drawdowns, +5.1% by approvals), but much less so for people trading up (+0.4% by drawdowns, +0.9% by approvals), which again supports our contention that the slowdown in both prices and mortgage activity is more pronounced for the prime Dublin market given the relative lack of FTBs in this segment.
 
Dalata: Overseas visitors top 10 million in 2018
 
End-of-year data from the CSO show that the number of trips to Ireland by overseas residents reached 10.62m in 2018, an increase of 6.9% on 2017 and the first time total visitors have breached 10 million.
 
Trips to Ireland by British residents, traditionally the key market for inbound visitors, increased only marginally (0.8%) last year to 3.76m and was demoted to second largest category in 2018 by visitors from Europe (ex. Britain) which recorded 9.5% growth y/y to 3.81m. Strong growth continues to come from the North American market with trips by residents of the U.S. and Canada 13.4% higher last year at 2.38m, with this market having grown by almost one-third in the last two years alone. Other Areas (mainly Asia-Pacific) recorded growth of 6.7% last year to 0.66m. It is no surprise to see the British market remain under pressure, given the decline in the value of Sterling since the Brexit vote and the challenging outlook for consumers there, although last year represented an improvement on the 5% decline in British visitors recorded in 2017.  
 
The growth in overseas visitor numbers has been very impressive in recent years with last year’s total more than 50% higher than that recorded just five years ago. An element of this impressive growth however has been due to the success of Dublin Airport in growing transit passenger volumes in the past couple of years in particular – excluding these short-lived visits, underlying growth was 5.9% last year and a cumulative 44% over the past five years, and we suspect that such passengers flatter the North American category more than others.
 
Such strong data has positive implications for a range of sectors in Ireland, not least accommodation providers such as Dalata. This favourable demand backdrop (allied to paltry levels of new room supply in recent years) pushed hotel room occupancy rates in Irish hotels to the top of the European charts last year.
 
Irish Economy: Retail sales volumes +3.8% in 2018, +2.7% in cash terms
 
The final retail sales data of 2018 show that headline volumes slipped slightly (-0.4% m/m) in December, with the cash value of those sales falling 1.0% m/m. Core (ex-auto) sales were in positive territory, however, gaining 0.7% m/m in volume terms and +0.3% m/m in cash terms. For 2018 as a whole, headline volumes rose 3.8% (core +5.1%), with the value of sales +2.7% y/y (core +3.5%).
 
Data for the thirteen different segments of the retail sector show a broadly positive December performance, with nine segments seeing an annual uptick in volumes (and the same number seeing a y/y increase in value terms). In cash terms, the strongest performers on an annual basis were Electrical Goods (+9.6%), Fuel (+9.5%), ‘Other Retail Sales’ (+5.7%), ‘Hardware, Paints and Glass’ (+5.0%). Broadly speaking, consumer discretionary segments performed better (as you’d expect, given the booming economy), while there were also some sector-specific issues such as commodity price fluctuations reflected in the Fuel category (the above value increase was paired with a more pedestrian 3.6% rise in volumes) and Motor Trades, where new car sales have fallen sharply as consumers avail of the weak pound to import cheap second hand cars from Northern Ireland and Great Britain. On the latter, we have previously noted that there was only 1.2 new cars sold for every second hand car that was licensed for the first time in Ireland last year. This compares to an average new:second hand ratio of 2.0:1 in the five years leading up to the 2016 Brexit referendum.
 
Given the strong momentum in both employment growth (+3.0% y/y in Q318) and labour earnings (+3.2% y/y in Q318), we think that the outlook for consumer spending remains positive.
 
US-China Trade
 
The United States and China are set to hold a pivotal round of trade talks this week as they attempt to break the current impasse. Both sides have until March to reach a deal or more tariffs will be slapped on China. While no final deal is expected this week, we should at least see a package of proposals presented, however, Trump’s volatility remains a risk.
 
Brexit 'Plan B' vote and amendments
 
Later this evening (7pm approx.) the UK Parliament will vote on Theresa May’s ‘Plan B’ for taking Brexit forward, following the thumping ‘meaningful vote’ against her current deal. Votes will also take place on any amendments to this; the number submitted is well into the double digits and House of Commons Speaker John Bercow will announce which are being taking forward for a vote around lunchtime, with the vote on the ‘Plan B’ and amendments set to take place from around 7pm. The outcome of tonight’s vote and in particular the amendments that pass will be important in shaping the path Brexit takes from here forward. Two particular amendments which have been well flagged are those sponsored by Yvette Cooper and Dominic Grieve. The first proposes a Bill which would set a date of 26 February to secure parliament’s backing for a Brexit deal, after which time MPs could request an extension of Article 50 (which all EU member states would need to then agree to). The Grieve amendment would open the door to MPs considering alternative versions of Brexit and give priority to debates over backbench motions to discuss these in parliament.
 
Another amendment which looks to be significant is one by Sir Graham Brady, Chair of the 1922 Committee of backbench MPs. His amendment calls for “alternative arrangements to avoid a hard border” on the island of Ireland. It is being backed by the Prime Minister, with the aim of reinvigorating her Chequers proposal and adding impetus to the prospect of a renegotiation of the backstop, which the EU’s deputy Chief Brexit Negotiator pushed back against yesterday. Note that of the above highlighted amendments it is far from certain that any will pass whilst it remains to be seen whether the Speaker would choose to select the Brady amendment (or others) in the first place. On the latter, the head of the European Research Group, Jacob Rees-Mogg, has said he would oppose this but PM May is presumably still banking on using even a defeated amendment as a route to try and extract backstop concessions. Note that the path for Brexit from today onwards is far from clear but if the Cooper amendment does pass there is talk of a vote on that Bill on 5 February whilst PM May is now planning to hold another Brexit planning vote around 13 February. Needless to say, the UK’s exit from the EU is set to take place two months today, so time is very tight.
 
Economic releases 
 
13.30 US Goods Trade Balance
15.00 US CB Consumer Confidence
19.00 UK Parliament vote on Brexit Deal