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Mortgage lending hit from Covid not as big as feared – Goodbody

Improving trends in the housing market should help banks restore some
of their lost income from depressed mortgage activity, according to

The stockbroker said it expected
mortgage lending to decline 20pc this year to €7.6bn – better than the
previous estimate of €6.9bn before growing in 2021 to €8.6bn. The change
in forecast followed the publication of the Goodbody Analytics BER
Housebuilding Tracker.

“[We had] engagement with the banks
recently, including through the Q3 IMS results season last week, and Q3
mortgage drawdown data at ‘just’ minus 26pc year on year had already
made it clear that underlying trends in the housing market were
improving and better than expected,” said senior banking analyst Eamonn

Goodbody has upgraded its net
interest income forecasts above 2pc on average for the banks, reflecting
better than expected mortgage throughput following recent trading

However, Mr Hughes warned that while house price forecasts have improved employment trends remained weak, meaning banks still had impairment charges to contend with.

According to the report, house building rebounded strongly in the
third quarter as the construction sector ramped up output to nearly
match last year’s levels.

Goodbody now believes 20,000 new housing units will be built in 2020 – just 8pc down from last year’s total and far better than forecasters were predicting at mid-year.

However, the housing market isn’t completely back on track. New
housing starts have fallen 24pc in the year to date, indicating that the
disruption to the industry caused by coronavirus may take some time to

“This suggests that the impact of the
pandemic may be a longer-lasting one, with new developments completed,
but a more cautious approach taken on new starts, due to caution on the
market of the funding environment,” Mr O’Leary wrote in the report.

New home sales have continued to fall as well, although at a slowing pace.

Sales of new stock dropped by as much as 40pc in the second quarter but recovered somewhat last quarter to -18pc year-on-year.

Goodbody expects all this to push house prices down by 5pc next year, with rents to fall by a greater amount. But any forecast has to be tempered by the high degree of uncertainty in the market, O’Leary said.

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