Central Bank governor Philip Lane dismissed the notion of statutory limits on mortgage interest rates as he said a “high evidence threshold” will be set to justify any move to loosen mortgage loan caps.
Asked about high home-loan rates, Prof Lane said any legislation to curtail interest rates could deter potential market entrants and change the nature of the market as banks would focus on “super-safe” customers .
“It’s a very crude instrument which has many downsides, and is really treating the symptom rather than the underlying cause,” he told reporters in Dame Street at the publication of the bank’s 2015 annual report.
Bank surplus
The bank reported a €2.24 billion profit or surplus for the year, €1.79 billion of which was transferred as a dividend to the exchequer.
The “overwhelming contributory factor” was income from sovereign bonds held after the 2013 deal to scrap the Anglo Irish Bank promissory note scheme, said Prof Lane.
Much of this money originated with the State via interest payments on retained bonds and capital gains realised on €2 billion in bonds sold to the National Treasury Management Agency.
The bank is selling the bonds at a faster rate than the minimum schedule agreed with the European Central Bank, but Prof Lane would not be drawn on the speed of future disposals, saying that depended on market conditions.
The bank has already indicated that the first review of mortgage caps will be published in November, but Prof Lane said that the general framework of the regime was intended to be permanent.
Mortgage caps
He was asked whether housing supply constraints could be attributed in part to the mortgage caps.
Prof Lane said multiple, often conflicting forces, were at work in respect of supply and demand. “Anything that boosts housing demand – where the supply response is not forthcoming – is going to not be helpful.”
He called for “discipline” in addressing remaining vulnerabilities from the crash, saying this embraced fiscal discipline as well as discipline at the level of individual and corporate borrowers. “Yes, we have very good expected growth numbers this year and next year. But there are a lot of downside risks out there.”
