Makhlouf right to protect borrowers and banks from themselves

Gabriel Makhlouf may not have won himself many friends in political and banking circles by presiding over a decision on Wednesday to maintain rules that limit most new mortgages to 3.5 times borrowers' salary and also cap loans as a proportion of property values.

But he’s done the right thing to protect banks and borrowers from themselves at a time when many are still carrying the scars from the last crash and there are dark clouds on the horizon.

Makhlouf’s comments that the rules “are not going away” must also be welcomed when some would claim that they have done their job in reining in house price inflation – which isn’t the Central Bank’s objective, anyway.

The Central Bank’s own latest financial stability review, also published on Wednesday, highlights a number of risks facing the financial system and economy, most of which are external.

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Brexit

The most obvious one is Brexit. The implications of a chaotic Brexit for Ireland are obvious. But even an orderly UK exit from the EU could lead to issues, as it could encourage excessive risk-taking and lead to an overheating of the economy at a time when it is already running at full tilt. The Irish unemployment rate, which peaked at 16 per cent in 2012, now stands at 4.8 per cent.

There is also a real danger that a financial shock, following a prolonged period of ultra-low interest rates and easing of credit standards in parts of the global debt market, could hit asset prices globally. Irish house prices would not be immune.

Some groups, including Brokers Ireland and the Institute of Professional Auctioneers & Valuers, were out in force on Wednesday complaining about how the mortgage rules are fuelling a "rental trap", where would-be homeowners can't build up a necessary deposit to get a loan.

There's no doubt this is a major societal issue. But it's not the main concern of the Central Bank, whose job it is to maintain financial stability of borrowers and banks.