THE FINANCIAL Regulator and Central Bank have hit out at the country’s banks, saying first-time buyers being offered mortgages were not being properly assessed.
Many of these borrowers are now trapped in negative equity on their home loans.
A review by the Central Bank and the Financial Regulator found banks need to improve lending standards for first-time buyers.
It said while some progress is being made to improve lending standards and oversight, more can be done to improve practices.
It said there are concerns that, in some instances, banks are not utilising “robust and reliable” risk measures when developing new mortgage lending strategies or mortgage products.
“All banks are expected to ground their lending in strategies appropriate to their risk appetite rather than the direction of the market as a whole. A ‘follow my leader’ approach to mortgage strategy has not served banks or their borrowers well in the past,” the Central Bank said.
The review said measures could be taken on a bank by bank basis if the Central Bank was not satisfied that adequate safeguards existed for mortgage holders.
Director of the Irish Mortgage Corporation Frank Conway said the Central Bank is basically saying banks must never again be allowed to get to a stage where they act more like mobile phone providers, seeking to grab market share and less like what they really should be — banks, with risk as their central guiding philosophy.
“In practical terms, many banks have implemented a range of measures that meet today’s calls by the Central Bank. For example, banks have already pulled back from 100% financing. They have eliminated room-rental income. They require greater evidence of personal savings to generate deposits. Only in the area of loan terms is there less movement. While 40-year mortgages are no longer the norm, many banks still offer ‘super-term’ mortgage of 35 years’ duration,” he said.
The Central Bank also said there is evidence of limited involvement of non-executive directors in “assessing, scrutinising and challenging” new mortgage lending policies.
“The quality and quantity of feedback between mortgage policy and actual lending decisions needs to be improved,” it said.
It said “current conditions in the mortgage market remain challenging” with “overall mortgage lending remaining low”.
“As lending volumes remain low, the risk that current lending decisions will impact on future losses is not high,” it said.
On a positive note the review said banks have also made good progress in reducing the number of mortgages which represent exceptions to policy, which is evidence that banks have tightened controls.
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