Central Bank chief hints that new mortgage deposit rules may be eased

The Governor of the Central Bank has hinted that the bank is considering an easing of new mortgage lending rules, which will see borrowers having to save a 20% deposit before they are eligible for a mortgage.

Speaking today at the MABS National Management Forum in Portlaoise, Mr Holan suggested that mortgage loan insurance, which operates in other countries, could play a role in higher loan to value mortgages.

Mortgage loan insurance allows a bank lend 90% of a purchase price to a borrower, with a 10% deposit put down by the home buyers and a further 10% of the mortgage insured by a third party.

The cost of this insurance is borne by the borrower.

"Mortgage insurance is a method that has been used in (the US and other countries) for almost a century to enable borrowers to obtain finance for housing without actually having to save the 20% that would otherwise have been insisted upon by the lenders and their regulators," Mr Honohan said today.

"The Central Bank’s recent consultation paper pointedly raises the question of whether adequately insured mortgages should be allowed to exceed the general 80% rule which has been proposed – this might cover up to 90%, for example.

" While we point out that too liberal a use of such insurance can have the effect of neutralising the effectiveness of a ceiling on loan-to-value ratios as a mechanism for preventing house price bubbles (and while it typically provides no protection to the borrower), this would be less a concern if limited, for example, to relatively small loans and/or first time buyers."

Mr Holohan also said that many of Ireland's indebted individuals and families are in this position because they were caught in a systemic event.

He said the way of limiting the likelihood or extent of a recurrence is to reduce the exposure of new borrowers to the threat of over-indebtedness.