Proposals concerning loan-to-value ratios and mortgage indemnity schemes are “the wrong medicine” to treat problems in the housing market, a mortgage broker has told an Oireachtas committee.
The Joint Committee on Finance, Public Expenditure and Reform was discussing proposals by the Central Bank which could result in first-time buyers requiring a deposit of up to 20 per cent. It also discussed proposals for mortgage insurance schemes.
“This whole conversation probably shouldn’t be had. The Central Bank plan shouldn’t go ahead and the mortgage indemnity plan shouldn’t go ahead,” Karl Deeter of Irish Mortgage Brokers told the committee.
“When you don’t have enough houses, to apply a macro tool on credit when lending is at about one-tenth of what it was in the peak . . . is actually the wrong medicine for the job,” he added.
Mr Deeter said he was concerned about the impact the proposals could have on first-time buyers and said figures suggesting only 2,800 mortgage seekers would be affected was “not an accurate reflection of the gross number”.
He suggested that alternatives to the current proposals be considered, including increased stress tests and the introduction of insurance to protect homeowners’ mortgage payments for a period if they lost their jobs.
However, Ross Maguire, senior counsel with the New Beginning group working on insolvency and debt-resolution issues, said the proposals on loan-to-value ratios were “not designed to punish first-time buyers” but to stop banks becoming involved in reckless or improvident lending again in future.
Credit bubble
He said the Central Bank had a “role and a duty” to ensure the mistakes of the past are not repeated.
“Unless the market is regulated, unless credit is restricted we will inevitably fall back into a credit-driven bubble and it is that I think that the Central Bank are seeking to guard against.”
However, he raised concern over mortgage indemnity insurance: “I would be concerned that a scheme like this will create a gap in the hedge to allow banks avoid regulation...and then ultimately in five years time we see crazy lending happening again”.
Brendan Burgess of askaboutmoney.com said that as a society we needed to “set a level for prudent borrowing” adding that an “appropriate” loan-to-value ratio should determined but said it need to be phased in to avoid unintended consequences.
However, he cautioned that “we should not use mortgage indemnity insurance to get around prudent borrowing and prudent lending”.
He suggested that a way to help house buyers would be to allow them to access part of their pension fund early to allow them to draw down funds towards their deposit.
Economist Dr Ronan Lyons of Trinity College Dublin said “as a general rule credit rationing is good, what the Central Bank is trying to do is good”. But he said if we brought in mortgage insurance “you are leaving us open to the prospect of another bubble”.