Irish residential property price data to be released this morning will show inflation fell back to 5 per cent in December, according to Davy.
In a statement, the stock broker said new data from Banking and Payments Federation Ireland (BPFI) show there was €352 million worth of mortgage approvals in December, which is down 15.7 per cent on the year.
However, it said the negative growth figure “reflects artificially inflated” activity levels at the end of 2014 when the average mortgage approval was €200,500 – a fresh high – suggesting that house prices “should regain momentum in 2016”.
In November, residential property price index (RPPI) inflation was 6.5 per cent, split between a 9.6 per cent gain outside Dublin and a 3.3 per cent rise in the capital.
"Clearly, the impact of stretched affordability, coupled with the Central Bank rules on mortgage lending, has helped cool house price inflation in Dublin," said Davy.
“Overall, December’s monthly price change is likely to be weak, perhaps negative, following the 0.5 per cent fall in November...The bigger picture is that residential property price inflation has fallen back close to 5 per cent, broadly in line with our forecasts.”
Looking forward to 2016, Davy said it expects Irish house price inflation to equal close to 5 per cent through the year driven by income gains.
“Private sector earnings grew by 3.6 per cent in the year to Q3 2015, and income tax cuts will boost aggregate household incomes by 0.5 per cent,” it said. “Moreover, Irish banks now have a fresh allocation of high loan-to-value mortgages to offer.
“This morning’s data from the BPFI show average mortgage approvals rising to a fresh high of €200,500 in December. Armed with larger mortgage loans, buyers will bid up prices for the limited amount of housing supply.”
The BPFI data show that there were €352m of mortgage approvals for house purchase in December and €1.2bn in Q4 2015, down 15.7 per cent and 18 per cent respectively on the year.
“However, with activity in the final quarter of 2014 inflated by the end of capital gains tax exemptions and a rush ahead of the Central Bank’s rules, the annual comparison was always likely to be negative,” said Davy.
Altogether, mortgage approvals for house purchase in 2015 equalled €5 billion (€5.5bn including re-mortgage and top-ups), up from €4.7 billion in 2014. Davy added it expects mortgage lending in 2015 “to be close to €4.5 billion”, up from €3.7bn in 2014.
“Clearly, fears that the Central Bank’s lending rules would lead to a contraction in lending and housing market transactions have been massively overblown,” it said.
“Housing activity continues to recover, albeit from exceptionally illiquid levels of transactions. In this context, our forecast for mortgage lending to rise to €5bn in 2016 does not look unrealistic.”
