Mortgage rules 'working well to keep house prices in check'

New research finds that the average loan size would be 8% higher without the current Central Bank controls.
Mortgage rules 'working well to keep house prices in check'

New rules were put in place six years ago as the economy started to recover from the bursting of the property bubble created by uncontrolled credit. Picture: iStock

There is no need to tighten the Central Bank rules that restrict the amounts of home loans households can borrow despite new home supply having been severely restricted by the shutdown of building sites during the Covid-19 crisis, new research by the ESRI has found. 

ESRI research professor Kieran McQuinn said that the research finds that the average loan size would be 8% higher without the current controls under the regulator's so-called macroeconomic prudential rules which "would have a follow-through effect on house prices". 

The rules that govern the amounts that mortgage borrowers can raise are based on the value of the property and on their income. They were put in place six years ago as the economy started to recover from the disastrous banking crisis and the bursting of the property bubble created by uncontrolled credit. 

Prof McQuinn said the report — House Prices and Mortgage Credit: Empirical Evidence for Ireland — showed that the mortgage controls were working well to break any potential link for credit to refuel house prices. 

The results of the analysis highlight the continued strong relationship between mortgage credit and house prices in the Irish market, and the effectiveness of the macroprudential regulations in limiting the increase in average loan sizes,” he said. 

Meanwhile, construction consultants Mitchell McDermott said that building construction costs rose 3.4% last year and could rise by up to 3% this year. 

Its estimated total construction output remained unchanged at €23bn last year, despite the impact of Covid. Output in 2021 is forecast to fall to €20bn. However, Paul Mitchell says both forecasts come with a number of caveats.

“In 2020 we lost 15% of the year due to Covid and, at the moment, it looks likely we’ll lose 25% of 2021,” he said. 

"That is a stark figure and will have a substantial impact on total output and residential output."

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