Mortgage loans are creeping back near their peak

THE average mortgage loan is now creeping back to near peak levels, the Economic and Social Research Institute (Esri) has said.

At the start of this year, the total average loan value had risen to 87pc of peak levels.

“If this continues over a sustained period of time we may be building up vulnerabilities in the mortgage market again that need to be monitored carefully,” said Dr Conor O’Toole, Esri senior research manager.

But he added the credit risk of the loans is better than the boom years and said the “vulnerabilities” in the scale of new lending are “nowhere near where they were”.

He pointed to research from the Central Bank, which shows that the type of person taking out the loans are from higher levels of income distribution.

“Back in 2005/2007, it was the bottom 20pc of the income distribution getting a large share of the mortgage market. Now it’s only people in the top 40pc who are getting mortgages at all. That may have distribution consequences, but it certainly suggests that the credit risk of the underlying loans is potentially better,” Dr O’Toole said.

“The loan-to-income ratios at which loans are going out are still quite low.”

The Esri warned the Central Bank, though, not to loosen its mortgage deposit rules as doing so would risk heaping further pressure on the housing market.

“If you do ease the macro prudential regulations, the danger is you will exacerbate the demand-side pressures, and the state of the housing market is such at present, that is something which we should avoid doing,” said Kieran McQuinn, Esri research professor, at the launch of the latest quarterly assessment of the economy.

The think tank also said that house prices look set to continue to strongly increase over the coming years.

“It’ll take quite a large increase in supply to really reduce house price pressures going forward,” Mr McQuinn said. “So I think you’re looking at strong house price growth over the coming years.”

The Esri said the Government should unveil a neutral Budget next week, but warned money may have to be taken out of the economy in future budgets. Mr McQuinn said personal tax rates should not be lowered next week.