Download Summary Irish residential mortgage market

No. 9, 25 Nov 2014
Contents
Summary
Irish residential mortgage
market
1
Trade
2
Foreign exchange rates
3
Selected statistics
6
Jargon buster (JB)
6
Members Research Team
Library & Research Service
This Economic Indicators focuses on



The Irish residential mortgage market;
Trade; and,
Foreign exchange rates.
The first section provides an overview of new
lending in the Irish residential mortgage market
for Q3 2014, the outstanding credit at Q3 2014
and arrears statistics for Q2 2014.
The second section provides an overview of
Ireland’s trade performance over the past
several years and an analysis of those trends.
The third section examines foreign currency
exchange rates and real effective exchange
rates. The former impacts on Ireland’s and Europe’s competitiveness and the second is a
useful measure of competitiveness.
Central Enquiry Desk: 618 4701
Following these articles, a selection of statistics is presented on the final page along with a
Jargon Buster (JB).
Irish residential mortgage market
On November 14, 2014, the Banking & Payments Federation of Ireland published its
Mortgage Market Profile Quarter 3 2014 Report. New mortgage lending was €1,126 million
in Quarter 3 2014. There was a quarterly increase in the number of new mortgages of 31.3%
(37.3% when measured by value). The annual increase in the number of new mortgages
was 40.7% (50.1% when measured by value).
Figure 1, overleaf, shows new lending for Q3, 2014, broken down by type for both number of
new loans and value of new loans.
First Time Buyers make up the largest proportion of new mortgages for Q3 2014, as
measured by both number and value of mortgages. However, the difference between First
Time Buyers and Mover Purchasers is noticeably greater when measured by number rather
than by value of mortgages. This is further reflected in the average loan drawn down by the
respective groups.
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Figure 1: New lending by type for Q3, 2014.
60%
50%
40%
30%
Number
20%
Value
10%
0%
FTB Purchase
Mover
Purchase
Residential
Investment
Letting
Purchase
Re-mortgage
Top-up
Source: Banking & Payments Federation of Ireland, (2014), ‘Mortgage Market Profile Quarter 3 2014 Report’
The average loan for a First Time Buyer in Q3 2014 was €166,516 (up 10.2% on Q3 2013),
while that for a Mover Purchaser was €224,431 (up 2.9% on Q3 2013). These two sectors
represent 87.2% of the new lending for Q3 by number and 92.8% by value.
According to Central Bank figures, the total mortgage credit outstanding to Irish households
(JB) was €116.9 million at the end of September 2014, down 5.5% from €123.7 billion at the
end of September 2013. The 2014 September end figure represents a 21.6% decline from
the peak of €149.2 million, reached in February 2009. This suggests that despite the
increase in new lending, overall Irish households are paying back mortgages at higher pace
than they are drawing them down.
Central Bank statistics show that, overall, 126,005 or 16.5% of PDH mortgages were in
arrears (both up to 90 days and over 90 days) at the end of Q2 2014. The corresponding
figure for end Q2 2013 was 142,892. Further information is available in the Central Bank’s
Residential Mortgage Arrears and Repossessions Statistics: June 2014, and the Spotlight on
‘Mortgage Arrears: Level and Resolution’.
Trade
Ireland’s trade performance has seemingly improved dramatically in recent quarters. On a
seasonally adjusted, constant price (JB) basis, Ireland’s exports increased by 6.3% in Q2
2014 over Q1 2014 and were 12.8% higher than in Q2 2013. Imports grew at a slightly
slower pace, 5.0% in Q2 2014 over Q1 2014 and were 11.5% higher than in Q2 2013.
Figure 2 overleaf shows Ireland’s seasonally adjusted imports and exports since 2009.
Overall exports grew in 2010 and 2011 but fell slightly in 2012 and stagnated. This levelling
off pattern is usually ascribed to the “patent cliff” whereby a number of pharmaceuticals
manufactured in Ireland came off patent and thus their value dropped.
Since Q2 2013 exports have grown rapidly and in recent quarters goods exports in particular
have grown. However, there are issues with what this growth represents especially around
“contracted production”. According to the Department of Finance’s Economic and Fiscal
Outlook 2015, contracted production “occurs when an Irish-resident (though not necessarily
Irish-owned) enterprise contracts a plant abroad to produce a good for supply to a third
country. The sale of the good is recorded as an Irish export as the economic ownership of
the good prior to sale is regarded as belonging to the Irish-resident enterprise. Imports used
in the production process are also recorded as Irish imports.” Thus both imports and exports
are increased even though no physical goods actually enter Ireland and the related
economic activity e.g. employment is modest.
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According to their calculations in the first half of 2014 net exports were approximately €4
billion higher due to such production. In previous years the effect was negligible or even
negative. This means that the recent strong performance of Irish exports and GDP growth is
attributable in part to such production. This also boosts headline GDP figures. The Irish
Fiscal Advisory Council (IFAC) has pointed out that this makes economic forecasting more
difficult.
Figure 2: Seasonally adjusted imports and exports Q1 2010 to Q2 2014.
60,000
50,000
Euro
40,000
30,000
20,000
Goods Exports
Services Exports
Goods Imports
Q2…
Q1…
Q4…
Q3…
Q2…
Q1…
Q4…
Q3…
Q2…
Q1…
Q4…
Q3…
Q2…
Q1…
Q4…
Q3…
0
Q2…
Q1…
10,000
Services Imports
Source: CSO Quarterly National Accounts Q2 2014, Annex 1B. Constant prices.
Foreign exchange rates
Eurostat data shows that on a monthly average for October 2014, 1 EUR would buy
0.78 GBP; 1.26 USD; 136.85 YEN; 1.44 AUD and 51.93 RUB.
Table 1: 1 Euro set against selected currencies
Currency
Oct-11
Oct-12
3 Year
Percentage
change
1 Year
Percentage
Change
Pound Sterling
0.87036
0.80665
0.84720
0.78861
-9.4%
-6.9%
Swiss Franc
1.2295
1.2098
1.2316
1.2078
-1.8%
-1.9%
Australian Dollar
1.3525
1.2596
1.4328
1.4436
6.7%
0.8%
Canadian Dollar
1.3981
1.2801
1.4128
1.4214
1.7%
0.6%
US Dollar
1.3706
1.2974
1.3635
1.2673
-7.5%
-7.1%
10.9188
11.2215
13.5283
14.0266
28.5%
3.7%
105.06
102.47
133.32
136.85
30.3%
2.6%
Russian Rouble
42.8569
40.3558
43.7440
51.9380
21.2%
18.7%
Renminbi-Yuan
8.7308
8.1390
8.3226
7.7635
-11.1%
-6.7%
South African Rand
Japanese Yen
Oct-13
Oct-14
Source: Eurostat
The figures indicate a significant year-on-year depreciation of the Euro of 6.9% against the
Pound Sterling and 7.1% against the US Dollar to October 2014. There has been an
appreciation of the Euro of 0.8% against the Australian Dollar, 2.6% against the Japanese
Yen and 18.7% against the Russian Rouble. However, this is perhaps more a sign of other
countries underlying weaknesses rather than Eurozone strength.
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It is the depreciation of the Euro against the US Dollar and the Pound Sterling that is
perhaps of specific note, as the United Kingdom and the United States are the two biggest
trading partners of the Eurozone. The Eurozone is affected by a myriad of issues:



Low inflation rates – 0.4% for the year to the end of October 2014;
Low ECB interest rates – historically low at 0.05%; and,
Low GDP growth – seasonally adjusted GDP grew by 0.8% year-on-year for the third
quarter of 2014.
The USA and the UK have higher inflation and economic performance and this, in part,
explains the relative strength of the US Dollar and the Pound Sterling against the Euro (JB).
Real effective exchange rates
The Real Effective Exchange Rate (REER) is used as a measure to assess a country’s (or
currency area’s) price or cost competitiveness relative to competitors in international
markets.
REERs are weighted averages of bilateral exchange rates adjusted by relative consumer
prices. The REER used in the dataset of the graph below seeks to measure the value of
Ireland’s goods against those of 41 of its trading partners at the prevailing nominal exchange
rate. This is then compared with the REER of the Eurozone and the EU, measured against
the same panel of 41 countries.
A rise in the index means a loss in competitiveness and a decrease implies the opposite. As
is evidenced by the graph below Ireland has seen a slight increase of 0.3% in
competitiveness as set against 41 trading partners in the year to June 2014 after a loss of
2.3% in the year to June 2013. Against this, EU28-bloc has seen a decrease in
competitiveness of 4.2% year-on-year to June 2013 and a further decrease of 2.3% year-onyear to June 2014. See map overleaf for individual country level data.
In this light, it can be considered that in the 12 months to June 2014, Ireland has increased
its competitiveness as against its EU trading partners, especially in the UK.
Figure 3: Real Effective Exchange Rate for Ireland, the Eurozone, and the EU28, June
2012 – June 2014
98
95.73
96.21
European
Union (28
countries)
96
94
94.48
92.17
94.18
92
92.36
90
91.84
89.72
Euro area
(18
countries)
88
86
86.10
84
82
Ireland
80
June '12
June '13
June '14
Source: Eurostat
4
5
Selected statistics
Macro Indicators
Gross domestic product (SA €m)
Gross national product (SA €m)
Exports (€m constant prices)
Imports (€m)
Consumer Sentiment and Performance
New private cars licensed for the first time
Residential property price index (Jan
2005=100)
Retail sales volume (2005=100)
Consumer price index (Dec 2011=100)
Harmonised index of consumer prices
(2005=100)
Labour Market
Number employed SA (QNHS)
Unemployment rate (Live Register)
Live Register (SA)
PPS number issued to non-Irish nationals
Industry
Industrial production (SA) (2005=100)
Services output index (2010=100)
Agricultural output price index (2010=100)
Manufacturing output price index (2010=100)
New goods vehicles licensed for the first time
Number of dwellings completed
Loans to Irish households outstanding (€bn)
Period
2014 Q2
2014 Q2
2014 Q2
2014 Q2
Period
2014 JanOct
Latest
45,611
37,983
51,774
40,958
Latest
Previous
42,810
35,510
45,952
36,620
Previous
Change
+6.5%
+7.0%
+12.7%
+11.9%
Change
89,915
69,402
+29.6%
2014 Oct
80.7
69.4
+16.3%
2014 Sept
2014 Oct
99.7
101.8
94.1
101.6
+6.0%
+0.2%
2014 Oct
109.6
109.2
+0.4%
Latest
1,916,900
11.0%
371,400
Previous
1,890,100
12.4%
410,000
Change
+1.4%
-11.3%
-9.4%
62,354
54,642
+14.1%
Latest
115.1
113.3
114.7
102.1
Previous
95.3
107.8
129.7
101.8
Change
+20.7%
+5.1%
-11.6%
+0.3%
14,861
10,014
+48.4%
782
137.1
604
149.3
+29.5%
-8.2%
Period
2014 Q3
2014 Oct
2014 Oct
2014 JanAug
Period
2014 Sept
2014 Sept
2014 Sept
2014 Oct
2014 JanOct
2014 Aug
2014 Sept
Click indictor title for source. Some indicators are preliminary and subject to revision. The previous figure refers to
the figure for the corresponding period in the previous year. SA = seasonally adjusted.
Jargon buster
Total credit outstanding to Irish households – This figure represents the total amount of
credit outstanding to Irish households which is held by a financial institution that is regulated by
the Central Bank of Ireland. This represents the vast majority of credit in the Irish Market and
covers a larger number of institutions than the Department of Finance Mortgage Arrears
Statistics, which cover the six institutions which have been set mortgage arrears resolution
targets. However, there are a small number of unregulated institutions that are not covered.
Constant Prices – Constant prices are a way of measuring the real change in output. A year is
chosen as the base year. For any subsequent year, the output is measured using the price level
of the base year. This excludes any nominal change in output and enables a comparison of the
actual goods and services produced.
Interest, inflation, and exchange rates – If the interest rate charged by a central bank
increases, all else equal, then that currency becomes more desirable to hold and so demand for
the currency increases causing its value to appreciate. If interest rates are high, this also acts
against inflation, which also makes a currency attractive to hold. These variables naturally
operate within the context of other economic forces.
No liability is accepted to any person arising out of any reliance on the contents of this paper. Nothing herein
constitutes professional advice of any kind. This document contains a general summary of developments and is not
complete or definitive. It has been prepared for distribution to Members to aid them in their Parliamentary duties.
Authors are available to discuss the contents of these papers with Members and their staff.
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