Sir, – Many excellent and compelling arguments against the proposed new lending rules were raised by Conor Pope ("First-time buyers? Dream on", Weekend Review, October 14th). The proposed new rules on mortgage lending are ill-conceived and very poorly timed. The key measure in assessing risk is affordability and the proposed ratio of 3.5 times earnings is reasonable. The argument for a deposit, at any level, revolves around two issues – demonstration of financial discipline and the avoidance of negative equity. Anyone saving a 10 per cent deposit at today's house prices clearly demonstrates good financial discipline. While negative equity can cause inconvenience for borrowers, limiting their ability to upgrade in the short term, it is not a serious issue over the lifetime of a typical mortgage. An adequately capitalised lender should be able to plan for short-term effects of negative equity, within a well-managed portfolio, on its balance sheet. Imposing a 20 per cent deposit is just going to drive borrowers, as it did in the past, to accumulate this burdensome deposit through opaque, poor-quality, short-term borrowing. This will result in greater financial stress on the mortgage applicant and also deliver a poorer risk for the bank. Or we may again see the banks promote the obscene equity release product – where pensioners, who own their homes, start to pay for them again a second time as they are driven, through guilt, to raise cash to help their children face this impractical condition.
A well-policed 10 per cent deposit, together with intense scrutiny on affordability, meets the needs of the bank, the borrower and the community. – Yours, etc,
JOHN GRIFFIN,
Kells, Co Meath.
Sir, – The new requirement that people getting a mortgage will need to have saved a large chunk of the purchase money first is not unreasonable.
When the banking crisis happened, we wondered why prudent practices such as this has been abandoned in the eagerness to sell houses. Buying a house is not a right.
Indeed it was common practice that people saved for many years to buy a house and did not expect to be able to furnish it with the very best furniture, have cool gadgets, drive new cars, attend foreign weddings and go out whenever the mood arose.
Saving a large portion of the purchase price is evidence that the people buying the property have the developed habits of saving, budgeting, resisting temptation and attending to financial obligations.
Rating the purchasers’ commitment against the value of the property addresses the risk that should trouble arise and the security is insufficient, the banks (and the public purse) are not the only losers. It confirms that the purchasers have fully thought the matter through, beyond their desire to get on the property ladder.
There is no doubt this is difficult, but it wouldn’t be an achievement if it was easy. – Yours, etc,
SE LYDON,
Wilton, Cork.
Sir, – Is it possible that Irish people, when it comes to property prices, have gone from a mood of irrational exuberance to a mood of irrational fear; that any increase in prices is seen as a bubble, and therefore needs to be halted?
The Central Bank has announced measures that, as things stand, will have the effect of excluding a great many people from ever owning their own dwelling, and will leave them permanently dependent on the rented sector.
Before any such measures are adopted, the Central Bank will first have to establish that there is a bubble; that is not, so far as I know, quite as easy to establish as some people seem to think. If the measures are then seen to be justified, then the issue of social housing needs to be addressed: are people, already required to put up a 20 per cent deposit on their purchase of a dwelling, willing to see their taxes increased to meet this need? The evidence doesn’t appear to be there that they are. If they are not, where is the money going to come from?
The Central Bank was a disaster during the housing bubble; no one should take it for granted that they’ll get it right this time. Announcing measures to cure a problem they haven’t as yet established exists, but which will have a very serious impact on less well-off people, is unacceptable. The Central Bank still has a case to prove. – Yours, etc,
EOIN DILLON,
Mount Brown, Dublin 8.
Sir, – The proposal to limit mortgage lending to a fixed multiple of earnings is crude and illogical. A much more sensible approach would be to base a mortgage on the applicant’s savings history and monthly rent. It would be quite easy for a mortgage applicant to provide documentary proof of both of these and this would let a bank make a rational decision on lending based on proven ability to pay.
The 20 per cent deposit rule serves only to cushion the bank against a borrower losing their job and being forced to sell at a loss. Again this rule is crude and takes no account of the borrower’s job stability. For example, a permanently employed teacher or civil servant is a pretty safe bet and the bank should be able to make the appropriate commercial decision.
The current proposals by the Central Bank are crude instruments that carry the real risk of killing off the recovery in the property market. A more sophisticated approach, which would protect the banks, the borrowers and the State, is needed. – Yours, etc,
T O’SULLIVAN,
Dublin 5.