Banks set to squeeze lending to households further

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Charlie Weston

BANKS expect the demand for personal loans and mortgages to fall to record low levels in the coming months.

The Central Bank also said banks expect to tighten their credit standards for all categories of lending in the second quarter of the year, particularly for loans to households.

The lending squeeze is expected to hit house prices, possibly pushing them down sharply.

“For households, banks expect demand for loans to decrease dramatically in the next quarter,” a Central Bank Economic Letter titled 'Bank Credit Conditions & Monetary Policy', and written by David Byrne, Sarah Holton and Conor Parle, outlines.

Banks are expected to tighten lending criteria even more than they did during the height of the financial crisis more than a decade ago, the Central Bank research indicates.

And demand for loans from consumers is set to crash.

“Irish banks expect the biggest ever decrease in demand for loans for house purchase and for consumer credit, reflecting the major impact of the public health crisis on households and on consumer behaviour,” the research found.

There is already evidence of a squeeze on mortgage lending.

A number of banks, including Bank of Ireland, KBC, Ulster Bank and Dilosk/ICS, have temporarily suspended offering exemptions from strict Central Bank lending rules on the size of deposits and the amount that can be borrowed relative to income.

One in five mortgage borrowers was granted exemptions in 2018, but now banks are suspending these types of loan.

The move raises concern for the supply of homes, if it prompts builders in turn to scale back plans.

Banks are also putting valuations on some properties that are at least 10pc lower than prices which have already been agreed by buyers and vendors, according to mortgage brokers.

And there have been claims that banks that are withdrawing mortgage offers to people whose incomes are hit by the fall-out from the pandemic.

Central Bank Governor Gabriel Makhlouf recently defended the actions of banks in tightening lending criteria.

He said there is potentially a risk that some people will find themselves unable to complete house purchases.

He insisted “it’s in everyone’s interest that banks make prudent lending decisions... unlike the reckless lending of the past”.

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