Are the banks finding excuses not to lend, or is there simply no demand?

fricatus

From today's Irish Independent

Mortgage market recovery 'years away'
By Charlie Weston Personal Finance Editor

Wednesday August 17 2011
IT could be years before the mortgage market recovers, economists said yesterday.

They were reacting to new figures that showed just a trickle of new home loans were issued between April and June.

Mortgage lending has seized up, with just 3,550 new mortgages granted in April, May and June.

This is half the number issued in the same quarter a year ago, and a fraction of the 41,000 issued in the same three-month period in 2007, figures from the Irish Banking Federation show.

Housing economist David Duffy, of the Economic and Social Research Institute (ESRI), said the mortgage market is unlikely to recover until consumers had some certainty about the financial hit they are set to take in December's Budget.

"We are looking at a fairly weak market this year and next year unless something big happens which can bring about certainty," Dr Duffy said.

Uncertainty around the global economy is also holding back buyers from committing to a massive purchase like a house.

Dermot O'Leary, an economist with Goodbody Stockbrokers, said the fact that there were between 100,000 and 140,000 vacant housing units in the market meant prices were due to keep falling.

It could be a number of years before the housing and mortgage markets recover, Mr O'Leary said.

Brokers insisted that the collapse in mortgage lending is largely due to banks being reluctant to lend. Director of Irish Mortgage Brokers, Karl Deeter, said banks were approving people in principle for loans but when it came to the crunch they found a reason not to lend.

But head of the Irish Banking Federation, Pat Farrell, insisted there was no demand for mortgages. He said would-be buyers were holding back because of fears about job losses, falling property prices and weak consumer sentiment.

He said lenders were being prudent by only approving mortgages for those who have the capacity to repay.

"Current activity reflects the general macroeconomic environment. In these challenging times, manageable borrowing and prudent lending are to be expected," he said.

The figures show that for the first time since 2005 someone buying their first home or moving to a larger house is now borrowing less than €200,000.

- Charlie Weston Personal Finance Editor

Irish Independent

For me, the interesting argument is contained in the two comments that I've highlighted, which are clearly at variance.

Sure, demand has fallen - in a contracting economy, or one with low growth, that's to be expected.

However, I've heard tons of anecdotal evidence to suggest that the banks will give approval in principle, only then to take it away with the flimsiest of excuses.

I'd be interested to hear the views of people on this forum - what's happening out there?

Dirk Gently

both really. there is obviously less demand now, people wanting prices to fall more, worried about their jobs etc but there is also an unwillingness to lend too. mostly just first time buyers with big deposits and secure jobs getting approved.

I remember back in 2009 I was called into AIB because one of my payslips from a few months previous had a payment date on the slip and when they checked the statement it was actually 2 days later the money went into my account (work was a day or so late paying into my account that week due to transferring late in the day and not clearing till the following monday). I was grilled and made feel like a criminal over it and they said they would review my explanation and get back to me. By the time they did get back to me I was already moved into the house after getting the mortgage with another lender. They really do look for every excuse not to lend. One of the reasons I chose to get a mortgage at that time was because I felt everywhere was tightening up and it might not have been possible to get approved if I left it much later. The loan was for a low amount and repayments were small but they still saw it as a huge risk. Pity they weren't as cautious minded in the years previous.

I'd also wonder how many of those 3,500 in the past 3 months are for bank workers who still enjoy easy access to mortgages. I doubt 3,500 ordinary workers got the nod.

GSF

Dirk Gently wrote: »

I'd also wonder how many of those 3,500 in the past 3 months are for bank workers who still enjoy easy access to mortgages. I doubt 3,500 ordinary workers got the nod.

Being employed by a bank hardly qualifies as secure employment now does it?

Treehouse72

I don't think it's necessarily either. I think it's simply a reversion to sound credit practices, for example lending 3x income for a mortgage at 90% LTV or whatnot. If you do that at current house prices, you end up giving out 3,000 mortgages a quarter. That's how little value there is in the housing market at the moment. When house prices fall to sustainable levels, the amount of mortgages given out will rise.

I don't think it's a huge mystery unless you use 2006 as some kind of yardstick. Which would obviously be insane.

Dirk Gently

GSF wrote: »

Being employed by a bank hardly qualifies as secure employment now does it?

They're still getting in house approval and not too worried about saving deposits either.

ressem

There is plenty of demand.

There are credit unions in the midlands that are taking in plenty of money each month in repayments. They have bad debt reserves above 20%, way more than the banks and far less property exposure.

It's estimated that the large credit unions in the midlands (Athlone, Mullingar, Ballinasloe, Tullamore) have over 100 million in cash reserves held in banks.

But the credit unions and the financial regulator are at war at what the credit unions see as ultra-conservatism being imposed to a destructive degree on them.
Essentially repayments are coming in at three times what's permitted out as new loans.
But credit unions are not permitted to lend enough to their members, so the cash built up has to be dumped into low interest irish bank deposits and cycled between them every 3 months.

So good customers that have never missed a repayment are being apologetically refused by credit union managers and forced to appeal to banks.

Insanity.

Caveat: this is a one sided anecdotal version of events based on a discussion with staff and credit union members. Some openness on what impositions are on credit union investments and why they're putting (non-reserve) money into low interest on-demand bank accounts would be welcome.