Download LIA Mullingar Overview of the Irish Mortgage Market

LIA Mullingar
Overview of the Irish Mortgage Market
9th May 2007
Kieran Tansey , Head of Broker Business, EBS.
2
Agenda
ƒ
Introduction
ƒ
Key Drivers in the Irish Mortgage Market
ƒ
Importance of Retail Investors
ƒ
Summary of Products for : FTBs , STBs , Switchers , Investors.
3
Key Drivers in the Irish Mortgage Market
4
GNP
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
10
9
8
7
6
5
4
3
2
1
0
20
00
% YoY Growth
Sustained period of strong economic growth
GDP
•
In 2006 GNP & GDP growth are forecast to have reached in the order of
5.8% and 6.2% respectively
•
Growth in 2006 was driven from domestic factors with private investment
growth of 8.3% and consumption growing by 6.8%
•
GDP/GNP growth set to be in the order of 5% over the next few years
Source: ESRI
5
Leading to employment and wage growth
Employment Levels
(1998 - 2007(f))
2,500
2,120
•
Employment growth has remained
strong since the nineties
•
As a result wage growth has
remained strong over the last
decade
•
With high employment growth and
strong participation rates (expected
to remain in the region of
1.1%/1.2% over the next few years)
unemployment rates will remain at
4.4% (virtually no unemployment)
000's
2,000
1,500
1,494
1,000
500
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
Wage Growth
(2004 - 2007)
6.5
6
% Growth
5.5
5
2004
Source: ESRI
2005
2006
2007
2007
6
Underpinned by Favourable Demographics
Irish Population (1961 - 2020)
6.0
5.0
€m
4.0
3.0
2.0
1.0
0.0
1961
•
1971
1981
1991
1996
2002
2005
2010
2015
2020
Economy boosted during nineties by strong growth in economically active
age groups (25 – 35 years), fuelled by a baby boom in the seventies and
early eighties
7
and High Levels of Inward Migration
Migration Levels
1995 - 2008(f)
100
90
80
000s
70
60
50
40
30
20
10
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
•
•
Strong levels of inward migration have driven demand for housing in recent
years
The ESRI are estimating inward migration of 87k in 2006 and 72k for 2007
Source: CSO Actual
ESRI Forecast
8
Creating Strong Demand for Housing
thousands, annual average
Demand for Housing
80
70
60
50
40
30
20
10
0
1991-1996
Population Growth
Vacant
1996-2001
Change in Headship
Obsolescense
2001-2006
Migration
9
With Supply Responding Well Over Time
ƒ Supply response – lagged but strong
ƒ One third of current housing stock (547,000) was built in last 10 years.
– Housing stock per ‘000 of population still below European average
ƒ Change in mix of stock
– 8% of housing stock is apartments ; 50% increase in Dublin over past 10 years
– 75% of housing stock outside Dublin relates to detached and semi-detached properties
(67% nationally)
Housing Completions
Housing stock per ‘000
30.0%
95,000
85,000
25.0%
UK
Sweden
75,000
20.0%
65,000
15.0%
55,000
45,000
10.0%
35,000
Netherlands
Ireland
Germany
5.0%
Finland
0.0%
Denmark
-5.0%
Belgium
25,000
15,000
5,000
-5,000 1991 19921993 1994 1995 19961997 1998 1999 2000 20012002 2003 2004 20052006 2007 -10.0%
Completions
Year on Year Growth
Austria
0
50
100
150
200
250
300
350
400
450
500
10
Upward Pressure on House Prices
ƒ
Average national house price growth of 15% per annum 1996 -2005.
ƒ
Average house price up from €75k in 1996 to €310k at end of 2006.
ƒ
Differential between Dublin prices and rest of country growing : from €10k
in 96 to €130k in ‘06
ƒ
Consensus view : house price inflation will moderate to 5% on average in
medium term – in line with medium term annual economic growth outlook
House Price Inflation
In line with economic growth
%
40
12%
6%
Source: ESRI/PTSB
Sep-06
Mar-06
-10
Sep-05
0%
Mar-05
0%
Sep-04
Dec'07
Mar-04
Dec'06
Sep-03
Dec'05
Sep-02
Dec'04
Mar-02
Dec'03
5%
Sep-01
Dec '02
10%
2%
Mar-01
Dec '99
Expecs
Decdeclined
'00 Dec '01
Mar-97
Demand
0
Surge
Dec '97 Dec '98
-5
15%
2.7%
Sep-00
5
20%
6.2%
4.0%
3.9%
4%
25%
5.4%
5.1%
Mar-00
Demand &
Supply Meet
10
Price Growth
Mar-03
Record
Supply
Sep-99
Investor
relief back
7.7%
8%
8.5%
Mar-99
15
Record
Supply
US recession
biting
Sep-98
20
Investor
relief w/d
Mar-98
25
30%
GNP
9.5%
10%
LTVs
Cut
Sep-97
30
35%
10.3%
35
11
Mortgage Debt Rising Quickly
Gross Mortgage Lending Advances
(2002 - 2007)
40
35
•
Mortgage lending has increased
from €14.5bn in 2002 to an
estimated €39.8bn in 2006
(+157%)
•
Outstanding mortgage debt has
seen growth rates in the region of
25%-30%, but this has slowed in
recent months to 25%
30
€bn
25
Refinance
Equity Release
Buy to Let
Second Time Buyers
First Time Buyers
20
15
10
5
0
2002
140,000
2003
2004
2005
2006
2007
Irish Mortgage Balances
Jan 1999 - Jan 2007
30.0%
€124,600
120,000
25.0%
20.0%
80,000
15.0%
60,000
10.0%
40,000
20,000
0
5.0%
0.0%
Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07
Year on Year Growth Rates
Value of Balances €m
100,000
25.0%
12
But Debt in Ireland Still Relatively Low
….with mortgage debt as proportion of value housing stock at just 26%
• Value of the Housing Stock has grown four fold to €554bn in last 10 years . At the same
time Mortgage Credit growth remains strong : annual growth rate at 25% and mortgage
balances of €124.6bn at end January 2007
• 77% of housing stock in Ireland is unencumbered
13
Demand Supported by Sound Fundamentals
thousands, annual average
….Strong demand, coupled with insufficient housing stock causing house
prices strong house price growth to continue
Household Formation and House Completions
80
70
60
50
40
30
20
10
0
1991-1996
1996-2001
Population Growth
Vacant
2001-2006
Change in Headship
Obsolescense
2006-2011
2011-2016
Migration
• In order to meet demand, which is driven by a young population and strong
migration, we need to build c.60,000 units annually over the next five years
Source: ESRI/PTSB
14
GNP
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
10
9
8
7
6
5
4
3
2
1
0
20
00
% YoY Growth
Economic Growth Set to Continue
GDP
Aside:
The biggest boost to spending in 2007 will no doubt come from the SSIA’s
Around €16bn will be released in the 12 months from May 2006 – this value
is equivalent to 10% of GDP and 22% of total annual consumer spending.
15
Large Cohorts Needing Housing
Population Structure 2005
Populaton Struture 2015
90-94
80-84
70-74
60-64
50-54
40-44
30-34
20-24
10-14
0-4
A ge
A ge
90-94
80-84
70-74
60-64
50-54
40-44
30-34
20-24
10-14
0-4
0
100000
200000
300000
400000
0
100000
200000
300000
400000
•Typically Irish people buy their first home between the ages of 24 and 35
• Almost 31% or 1.3m of the population are aged between 20 and 40 years
of age i.e. they are in the house purchase age bracket
•Over the next ten years the numbers of people in house buying age bracket
will continue to remain high
16
Why are Investors Buying?
17
Rental Growth of 10% in 2006
•Year on Year (to
September) rents have
increased by 10.1%
across the country
(although report also
shows that this slowed
to 9.2% in October)
•Since Q2 2005, rents
in Dublin have
increased by 8.3%,
and 10.0% in Cork
Recovery in Rental Yields
Growth in Rental Yields
(Jan 00 - Dec 06)
20%
15%
Sep-06
May-06
Jan-06
Sep-05
May-05
Jan-05
Sep-04
May-04
Jan-04
Sep-03
May-03
Jan-03
Sep-02
May-02
Jan-02
Sep-01
May-01
Jan-01
-5%
Sep-00
0%
May-00
5%
Jan-00
YoY Growths
10%
-10%
• The Central Statistics Office recorded yoy growth of 7.6% in Dec 2006 (growth
rates have averaged at 5.3% since the beginning of the year)
• Location remains strong and demand is driven by population growth and strong
levels of net migration
Source: Central Statistics Office
19
Past Record of House Price Appreciation
•Mortgage stock had a value of €100bn at the end of 2005
•Housing stock in Ireland is worth €542bn
20
Now a Significant Part of Mortgage Market
Investor Lending Advances
(2002 - 2007)
6
5
€bn
4
3
2
2.99
3.7
4.0
4.7
4.8
4.8
2005
2006
2007
1
0
2002
2003
2004
• The Investor segment is a key segment of the Irish residential market
• The market has grown in size from €2.99bn in 2002 to and estimated €4.8bn in
2006 (+60.5%)
• The market is forecast to represent 14% of the total residential lending market in
2007.
21
Conclusion – Market Assumptions for 2007
Market continued to be supported by a number of factors
ƒ
GNP and GDP growth expected to reach 5.8% and 6.2% Strong levels of employment
ƒ
Employment growth set to be 4.5% by year end.
ƒ
Consumer spending is strong (6.5%f ’06), supported by strong income growth and also by a savings
ratio of 11%
ƒ
Population growth estimated at 2.5% to end of April, with strong growth in the 25-29 age group
Market Outlook for 2007
ƒ
House price growth to moderate in 2007 to 4%/5% from annual growth of 11.8% in 2006
ƒ
Over 90,000 house completions in 2006 decreasing to 84,000 next year
ƒ
Growth in gross lending expected to be flat with total lending reaching just over €39.8m in 2006 and
€39.6m 2007
–
ƒ
Segments will see significant shifts with refinance and equity release markets increasing in 2007
National book growth also expected to slow, from 25.5% in 2006 to 24% by year end