The Central Bank’s mortgage lending rules are set to be reviewed this summer, according to the bank’s new governor.
In an interview with The Irish Times today, Philip Lane said the new lending regime which came into force early last year was here to stay but he said the bank was open-minded about varying the rules if it sees fit.
Under the rules first-time buyers usually need a deposit of 10 per cent of the first €220,000 cost of a home, and 20 per cent of the remainder of its value.
Mover uppers must have a 20 per cent deposit on the total amount of their loan leading to many people being forced away from buying.
Mortgages are also generally limited to 3.5 times gross income for all borrowers which has led to difficulties for people in urban areas, particularly Dublin, to afford a property.
“The rules, I think, could be adjusted upwards or downwards. It’s not the case that the Central Bank picked the most severe rules. Those rules can be adjusted, recalibrated, but it’s not the case that we’d expected to see [this reviewed] every quarter,” he said.
“The case for having rules is very robust and, again, if these rules had been in place in the mid-2000s, a lot of the problems would have been mitigated.”
The Central Bank introduced the rules a year ago but Minister for Finance Michael Noonan called on it last September to review mortgage caps for first-time homebuyers.
The Minister argued the situation had changed since the bank introduced them to damp down the market.
However, Prof Lane said the bank had foreseen many of the developments since the rules came in.
“Not everything we’ve seen should be attributed to these rules. It would be basically an analytical error to attribute everything to these rules but equally a lot of what we have seen is consistent with what the Central Bank said would happen,” he said.
“So the Central Bank did expect that there would be a shift towards more people renting. I think it’s not surprising that there’d be a shift from a softening of Dublin house prices to an increase in house prices in the wider commuter belt.
“So these are partially the effect of the rules but partially also we have a very strongly growing economy.
“So the pressure on the Dublin housing market is partly due to the success of the employment growth in Dublin.
“The softening in Dublin is partly due to the very strong price appreciation in the previous year or two. Markets don’t move in a kind of a smooth fashion.
“So there’s probably the reallocation between Dublin house prices and commuter belt house prices was probably partly due to an overshoot in the other direction in 2014.”
Prof Lane said the rules took force in respect of new mortgages only in mid-2015 as many loans issued before then were pre-approved.
The Central Bank review will be conducted on foot of a full year of data on the operation of the rules, which it expects to have this summer.
Further assessments could be made in a couple of years when a new credit register is well established.
What are your thoughts on the mortgage lending rules?
- Have they been a good thing or a bad thing?
- What would you like to see changed or altered?
- Have they affected you buying a property?
Have your say below…