Economist against mortgage scheme

The Government’s planned introduction of a mortgage insurance scheme could set it on a collision course with the Central Bank and create a new property bubble, according to a leading economist.

Trinity College assistant professor of economics Ronan Lyons warned that Finance Minister Michael Noonan’s proposal aimed at kickstarting the property market could cause significant inflation and be at odds with maximum loan-to-value proposals discussed by Central Bank governor Patrick Honohan.

Mr Lyons suggested, however, that the introduction of such measures could be brought forward in light of Mr Noonan’s proposals.

“I’ve a feeling the Central Bank may have a few things to say about it. I know the Central Bank is considering bringing in a maximum loan-to-value anyway.

“We may end up with the minister for finance and the governor of the central bank disagreeing on what may be a key measure of the budget”, he said.

Mr Lyons called for the mortgage insurance proposal, which the Government and other advocates argue would increase supply and help create a sustainable property market, to be scrapped.

He said the policy had echoes of the decade to 2007 which saw deposits fall and prices increase due to more readily available credit.

The emphasis, Mr Lyons, said, should be on reducing the cost of building new homes — particularly regulatory costs — not increasing prices which, he said, was a dangerous policy.