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DUBLIN, May 4 (Reuters) - The value of mortgage drawdowns in Ireland grew 40 percent year-on-year in the first quarter, data showed on Thursday, with surging demand likely to put further pressure on house prices currently posting double-digit growth.
Irish mortgage lending collapsed following the bursting of a property bubble in 2007 and a recovery over the last three years that has picked up significantly in recent months has coincided with a chronic housing shortage throughout the country.
House prices, which had stabilised at an annual growth rate of 4 to 5 percent last year following an initial rebound, have since accelerated above 10 percent as an easing of central bank lending rules and a new government subsidy for first-time home buyers added to the recovery.
Mortgage approvals also far outstripped drawdowns in the first three months, with year-on-year growth of 78 percent to 2 billion euros pointing to further pent up demand among buyers in the European Union's fastest growing economy.
"The biggest issue in terms of these approvals translating into drawdowns is the low level of new supply," Goodbody chief economist Dermot O'Leary said.
"Approvals for new entrants is substantially more than the amount of new properties coming to the market thus the obvious conclusion is that prices will continue to be bid up. Price inflation is likely to continue to accelerate from here."
O'Leary said of the 20,000 mortgages approved for first time buyers and investors in the past 12 months, only 10,000 would be met by new supply available for sale with self-builds set to account for almost half of the 18,500 homes forecast to be completed in 2017.
House prices remain 31 percent below the 2007 peak and Irish Central Bank governor Philip Lane said on Wednesday that he did not think the market was showing the same dynamic as a decade ago. He said the bank's rules limiting mortgages to 3.5 times a borrower's income would act as self-correcting brake to prices.
Analysts also say the mortgage market is still shy of the 10 billion euros of lending a year that would be considered a normalised rate.
Davy Stockbrokers increased its forecast for lending this year to 7.5 billion from 6.9 billion euros following Thursday's date and both Goodbody and Investec said there was clear upside risk to their forecasts of 7 billion euros. (Reporting by Padraic Halpin; Editing by Toby Chopra)