Central Bank leaves mortgage rules unchanged

The Central Bank is to leave its restrictions on mortgage borrowing unchanged after a review, saying they protect borrowers from excessive debt and help maintain financial stability.

Central Bank governor Philip Lane said "a sustained and substantial expansion in housing supply" was the answer to the current "serious affordability concerns" for both buyers and renters, rather than a relaxation of the rules.

“This is in our collective interest,” he said of the decision to retain the current limits on loan-to-income (LTI) and loan-to-value (LTV).

Brokers Ireland, which represents 1,250 mortgage brokers, said the outcome of the Central Bank’s annual review was “very disappointing” and the rules would keep aspiring homeowners exposed to high rents.

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The severity of the rules was leading to the creation of “a lost generation, stymied in their efforts to begin their financial planning journey with the purchase of a first home”, according to Brokers Ireland director of financial services Rachel McGovern.

Mr Lane said the level of both house prices and rents, particularly in urban areas, was posing “serious affordability concerns”, but the solution to this was a higher supply of properties.

It remained “appropriately prudent” to keep the existing rules in place, so that the financial system remained better placed to absorb the impact of future downturns in the Irish economy.

“A fully functioning and sustainable housing market is not achieved by tolerating imprudent lending standards by banks or excessive borrowing by households,” Mr Lane added.

Sympathy for individuals

“I am fully sympathetic that individuals may get frustrated. They may say: ‘I know my personal preferences, I know can I safely pay back more debt because I’m a person who may choose not to have a car, may choose to sacrifice going out and having a more active social life, because I want to own a home.’ I’m sure there are lots of people like that.

“Unfortunately the way we have to run it, we can’t customise it to every individual. We have these rules and then we do have the exemptions.”

The existing regime requires first-time buyers (FTBs) to be able to afford at least a 10 per cent deposit on their home, with only 5 per cent of new lending is allowed breach that rule.

Non-FTBs must generally have a 20 per cent deposit, with only 20 per cent of new lending permitted to breach that rule.

All buyers can get mortgages for up to 3½ times their income. In the case of FTBs, 20 per cent of new lending can go above that limit, while for non-FTBs only 10 per cent of new lending can breach that limit.

The pace of growth in new mortgage lending remains strong, the Central Bank also found, although the volume of lending “remains below levels associated with a fully-functioning housing market” and there is “scope for further sustainable increases” in lending.

New mortgage lending is not as prominent a factor in driving increases in house prices as the issues with supply and turnover of properties, its analysis concludes, and there has been little change in average LTVs and LTIs and “no sign of a generalised deterioration” in lending standards.

Moneylender licence

The Central Bank governor was questioned about the confirmation by UK moneylender Amigo that it is to move into the Irish market and has secured regulatory approval to do so.

There are 38 moneylenders licensed in the State by the Central Bank, lending to some 350,000 Irish consumers at rates of up to 288 per cent. It was put to Mr Lane that this did not protect the most vulnerable of Irish consumers from excessive debt.

“We operate in a legal framework. If a firm, and I’m not talking about any particular firm, meets the legal requirements, that’s our duty to make that decision . . . I think the wider question is about the legal framework.”

On the question of whether the State “should tolerate moneylenders or not”, Mr Lane said the Central Bank encouraged everyone to look for alternative providers of loans, but it was better to have regulated moneylenders than a black market.