Sellers slam ‘crude’ Central Bank home loan rules

Auctioneers have said that “crude” Central Bank mortgage rules are inflicting hardship on young prospective buyers, saying the cap on income is responsible for a large drop in home loan lending.

The claim comes as figures published yesterday showed the banks issued on average only 2,531 mortgages per month over the three months to the end of November.

Banking & Payments Federation Ireland – the industry group for the lenders – said that number of approvals had dropped 8% in the year.

By value, the amount of mortgages banks advanced was down 6.6% in the year.

An average monthly amount of €469 million was advanced, of which most was borrowed to buy homes.

Mortgage brokers and other sales groups have been up in arms ever since the effects of the controls the Central Bank introduced earlier this year became apparent.

The rules, through imposing loan-to-value and loan-to-income ratios, restrict the amount first and second-time borrowers can borrow.

They also set limits on the amount the banks can lend out in home loans in any one year.

Yesterday, Pat Davitt, chief executive at IPAV—the Institute of Professional Auctioneers & Valuers – said the rules were causing social hardship.

“The truth is, the rules are premature in a market where lack of supply is the issue, not a lack of lending.

"And, in such a market, the effect of crude lending restrictions is, the weakest financially are getting hit hardest,” Mr Davitt said.

Central Bank chiefs have long signalled that the rules, which are designed to stop a repeat of the excessive property lending that occurred here during the boom years, are here to stay.

But the rules could be loosene nonetheless. Analysts say though not explicitly designed to control house price inflation the controls have slowed the rate of home price increases this year.

Later today, the CSO publishes its latest home price inflation index.

Last month, the index showed home prices had risen 7.6% in the year to end of October, and were up 10.7% outside of the capital.

Conall Mac Coille, chief economist at Davy Stockbrokers, said at a time of little new housing supply the controls had stopped borrowers taking out “ever higher mortgage loans.”

Increased wages, not more lending, will likely however drive up house price inflation next year, Mr Mac Coille said.

Separately, the Central Bank said it was extending its study of tracker mortgages to find out whether Irish-based lenders have “fully honoured” customers’ contracts.