Borrowing by first-time buyers on course to hit €5bn by 2018

MORTGAGE lending to first-time buyers could quadruple in the next four years. And an extra 82,000 houses will need to be built up to 2018 in order to cater for demand, a new report from Davy stockbrokers says.

The Government has projected that an additional 25,000 houses a year will have to be constructed by 2018.

Davy analysts Conall Mac Coille and David McNamara estimate that strong demand from first-time buyers could |see mortgage lending to new buyers alone quadrupling to €5bn a year.

When loans for top-ups, re-mortgaging and buy-to-lets are added in, there was a total of €2.5bn in mortgage lending advanced last year by banks.

The construction sector, meanwhile, will struggle to meet demand, with just 8,000 units completed last year. Demographic trends indicate that there is a need for 25,000 new homes a year, but this may be an underestimate as large numbers of potential buyers were squeezed out of the market during the boom.

This has led to a situation where the home ownership rate has fallen back to 70pc.

“A rise in the house ownership rate back to its 2006 level of 74.7pc would imply that an additional 82,000 households would need to purchase a home,” the report states.

There are currently 1.09 |million home owners, with half of these repaying a mortgage. Another 475,000 householders are renters.

But householders with existing home loans are set to continue to pay down debt, the report from Davy stockbrokers says. This means that new mortgage lending will depend on first-time-buyers.

The economists point out that household debt levels are exceptionally high on historical and international comparisons.

“For this reason, the stock of Irish household debt and mortgage lending will continue to fall for the foreseeable future, late into the current decade,” according to the report.

Data suggests the paying down of household debt could go on for a number of years, as households here are at an early stage of debt repayment |compared with Britain.

Although there was gross mortgage lending of €2.5bn last year, some €10.6bn in existing mortgages was repaid. This meant mortgage loans to households fell by €8bn overall.

The economists state: “Should first-time buyer loans rise towards 25,000, facilitated by a sharp expansion of construction output, they will still be insufficient to offset current repayments by existing mortgaged households.”

This will mean overall mortgage debt looks set to continue contracting, placing greater pressure on Irish banks to attract new business, Davy said.