13/5/2014: Q1 2014 Mortgages Approvals Data: There Is a Rise, But...

Undoubtedly, you heard much about the latest IBF data on mortgages approvals showing huge increases in lending in March 2014 compared to March 2013. But are these increases as dramatic as the IBF claims?

Well, let's take a look at the data:

• In Q1 2014, total number of mortgages approved for house purchase as opposed to remortgaging was 4,357 which represents a large increase of 55% y/y. Remortgages approved rose to 334, up 18% y/y. And total number of mortgages approved is up 51% to 4,691. Sounds impressive, until your remember that November 2012-April 2013 was the period of huge volatility due to changes in tax breaks on house purchases. But more on this point below.
• By value, total mortgages approved in Q1 2014 rose to EUR782 million, or 56% up on Q1 2013. House purchases mortgages value was at EUR750 million, up 58% y/y and remortgaging was up at EUR32 million or +19% y/y.
• Average mortgage issued for house purchase purpose stood at EUR172,027 which is up 3% y/y, average re-mortgaging loan was EUR93,954 or down 1% y/y. So average mortgage issued for both purposes was EUR136,854 which is up 3% y/y.

Two charts to illustrate above numbers:

Note two things from above chart:

1. With such a large jump in March, number of mortgages approved is still barely above the trend line. Which might be a sign of solid technical support for further upside.
2. Average mortgage value, having risen slightly above the trend line is still consistent with downward pressure on mortgages issued. Things are still solidly trending downside here.

Note to the above chart: we are bang-on the trend line in March, so nothing surprising in the rise - it is in line with longer term trend. The series continue to show support to the upside, which is a good news.

But here is the kicker. Coming back to that problem period of November 2012 - April 2013, we have a pesky little problem: how do we compensate for the one-off change in mortgages issuance that took place due to changes in taxation. One way (pretty much the only way) is to compute trend and use it to replace the actual outruns in these 'troublesome' months. I've done this before, so you will be familiar with the chart below:

Here's the thing: in IBF data we have a 53% rise in house purchase mortgages approved in March 2014 y/y. Adjusting for the one-off tax changes yields a much shallower rise - of 8.2%. Ditto for value data: IBF data shows 50.3% rise, but adjusting for volatility induced by tax changes, we have a 5.4% rise.

Still, nice bit - there is a rise...