Ulster Bank opposes 20% mortgage deposit plans

It is understood that Ulster Bank supports keeping the 90% loan-to-value rule for mortgages with a value of €500,000 or less, as this will include the bulk of first-time buyers.

Higher loan-to-value ratios of up to 80% would then be applied to mortgages above €500,000 as this will mostly apply to people trading up who would be able to afford a 20% deposit, said Ulster Bank.

The deadline for submissions to the Central Bank on the proposed mortgage lending regulations was midnight last night. The Department of Finance made its submission yesterday morning and the banks made their submissions later in the day.

Bank of Ireland, AIB and Permanent TSB all declined to comment on their submissions.

In its submission, the Department of Finance called on the Central Bank to introduce a longer timeframe for the application of the 20% deposit rule and to ease up on the number of mortgages that have to comply with the onerous loan-to-value requirement.

Last October, the Central Bank announced two key reforms aimed at preventing another housing bubble. From the beginning of January, banks would only be able to provide mortgages on an 80% loan-to-value basis to 85% of mortgage applicants. Moreover, mortgage lending would be capped at 3.5 times loan-to-income for 80% of applications. A person familiar with the situation said there is unlikely to be any changes to the Central Bank’s proposed loan-to-income rules following the review period, but there could be some changes to the proposed loan-to-value guidelines. It depended on what was included in the submissions, added the source.

It is believed that Ulster Bank has included evidence from New Zealand, which also had a strict 85% cap on loan-to-value mortgages, that this rule had many adverse unintended consequences. These include favouring applicants who applied at the beginning of every quarter. Moreover, all New Zealand banks were found to have undershot the 15% limit because of fears that they would incur penalties if they exceeded the limit.

A team has been put in place with the Central Bank to deal with the submissions made by all stakeholders about the proposed rules. The review process is likely to be completed by the end of January and then a feedback document will be published as well as all the submissions.

Appearing before the Oireachtas Finance Committee two weeks ago, Central Bank governor Patrick Honohan said he wanted the rules to be introduced as soon as possible.

The chiefs executive of AIB and Bank of Ireland, David Duffy and Richie Boucher, both raised concerns about the 20% rule in November on the basis that it made it much harder for first-time buyers to get on the property ladder.