Central Bank defends home loan rules

Central Bank defends home loan rules

Central Bank governor Philip Lane has rejected claims the Central Bank’s decision not to loosen mortgage lending controls will deny many first-time buyers of the means of buying a home.

The country’s largest broker group, Brokers Ireland, said it was “very disappointed” by the bank’s decision to keep its loan to value and loan to income rules unchanged for another year, saying that rents were “substantially” higher than meeting the costs of servicing a mortgage across the country.

But Mr Lane said though he was “fully sympathetic” that the rules were designed to promote stability and there was sufficient flexibility for lenders to make exemptions.

Following its latest review, the Central Bank has assessed that the rise in new mortgage lending was “significant” but house prices were not destabilising the economy, as they had done at the end of the boom.

“What we have is essentially a fairly stable situation,” Mr Lane told reporters, meaning there was no need to change the controls which will apply through next year. 

“At this point of time they are working well and there is no particular reason today to make any changes to the calibration,” he said.

On house prices, the governor said the Central Bank believes there is “good evidence in Ireland” that prices respond to supply and “we are projecting significant increase in housing starts in the coming years” from low levels currently. 

The rules mean first-time borrowers can access mortgages of up to 90% of the value of the home with 3.5 times their income.

On the recent fall in share prices in Irish banks, Mr Lane said there were many Europe-wide issues in play, including debates about valuations of all lenders.

“The rules appear to have worked as intended and while they might be challenging for prospective homeowners, they seem to be reasonable for first-time buyers outside the major cities,” said Joey Sheahan, head of credit at MyMortgages.ie.

“However, the cash deposit required for a basic €300,000 plus property is simply too high for city dwellers who are struggling with high rents,” he said.

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