Unchanged mortgage rules welcomed

Analysts have welcomed moves by the Central Bank to largely keep mortgage lending rules unchanged.

In its latest review of macroprudential mortgage lending regulations, the Central Bank has kept lending limited to 3.5 times the income of a mortgage borrower — calling it the “anchor” of the rules system — but has changed the amount to which some borrowers can breach that loan-to-income cap.

Rules for first-time buyers remain unchanged, in that they can borrow up to 90% of the value of a property with a limit of 3.5 times their income, while up to 20% of new mortgage lending to them can be above that income limit.

For second and subequent buyers, that same 20% allowance is being lowered to 10% from January in a bid to increase the available level of lending to first-time buyers outside of the limits.

“The mortgage measures limit the financial risks associated with downward movements in house prices,” said Central Bank governor Philip Lane, although he added that the new measures are too small to alter house prices.

He said the new allowances for breaching the loan-to-income cap are in line with requests being made by borrowers.

New figures show that 3,751 mortgages were approved in October — more than half to first-time buyers — nearly 20% up year-on-year and 2.5% ahead of the previous month.

Goodbody chief economist Dermot O’Leary said the broad lack of rule changes “makes sense”.

“After the changes implemented last year — although necessary — continuity was needed this year. Rules here are more stringent than in the UK; partly because of the financial crisis remaining fresh in the memory and Ireland having more volatile economic cycles than Britain meaning increased chances of Irish borrowers getting into trouble.”

Merrion Capital chief economist Alan McQuaid said lenders are effectively caught between a rock and a hard place in that they need adequate capital to guard against economic shocks, but still need to lend.

He added it is unlikely the Central Bank will ease mortgage lending rules any further and that the regulator is only likely to tighten them going forward.

However, industry bodies feel the rules remain too restrictive and should not differentiate between first- time and subsequent buyers.

“The 90% loan-to-value ratio should apply to all buyers, not just first-time buyers, and the 3.5 times gross income is too restrictive and should be eased to 4.5 times income for all buyers,” said Rachel McGovern of Brokers Ireland.

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