Central Bank Governor Patrick Honohan has hinted that there could be an easing of the rules that will require mortgage applicants to save a 20 per cent deposit.
Last month, the Central Bank announced new mortgage rules requiring homebuyers to put down a 20 per cent deposit on the value of a property and that banks will be restricted to lending three-and-a-half times a borrower’s gross income.
“The Central Bank’s recent consultation paper pointedly raises the question of whether adequately insured mortgages should be allowed to exceed the general 80 per cent rule which has been proposed – this might cover up to 90 per cent, for example,” he said.
The regulations were due to come into effect on January 1st 2015.
“While we point out that too liberal a use of such insurance can have the effect of neutralising the effectiveness of a ceiling on loan-to-value ratios as a mechanism for preventing house price bubbles, and while it typically provides no protection to the borrower, this would be less a concern if limited, for example, to relatively small loans and/or first time buyers,” he said.
Mr Honohan was speaking at the annual National Management Forum, held by the Money Advice and Budgetary Service, in Portlaoise.
He also indicated he was not in favour of the Government mortgage insurance plan which will involve the State taking responsibility for 10–15 per cent of a loan’s value, the deposit covering approximately 5 per cent, and the bank being liable for the remainder.
“Of course, mortgage insurance would achieve relatively little if it merely shuffled systemic risk around within the domestic economy: external insurance from solid insurers would be needed,” he said.
Mr Honohan also said that limiting high loan-to-income mortgages will ensure consumer protection in the future and reduce the re-emergence of over indebtedness.
“We do envisage continuing to allow high LTIs - just not too many of them,” he said.
He said the Central Bank would do all in its power to protect the new generation of households and the nation at large, from the risk of repetition of what happened before.
Mr Honohan said while the implementation of personal insolvency framework had some “teething problems” it has helped to address “the imbalance of power that is often inherent in the creditor-debtor relationship.”
Mr Honohan referred to the “stigmatisation” of debtors and said “judgmental language or attaching blame is usually not the most constructive way of dealing with the acute practical problems” associated with debt.
He added that some of the writing on financial literacy “smacks of blaming the victim”.
“Many of the most acute household financial problems come from misfortune and lapses of judgement. Probably some of this could have been avoided if individuals,lenders as well as borrowers, had been informed to make good financial decisions under conditions of uncertainty,” he said.