Central Bank seeks views of public on home mortgage rules
The Central Bank, which brought in the credit restrictions for the first time in 2015, has pledged to never again allow Irish banks lend many billions in mortgage housing loans that fuelled the boom in house prices and led to the economic disaster when the property bubble collapsed over a decade ago. File picture
The Central Bank has formally launched its review of its mortgage lending rules, saying it wants members of the public to submit their views on the caps it places on property loans based on income and loan size, but insisting the controls overall will remain in place.
The reviews come as official figures showed house prices rose by almost 1% in May alone, up 5.5% from a year earlier, while estate agents predict prices could rise 7% in Munster over the next 12 months as the economy recovers from the Covid restrictions amid the sharp shortages of new house supply.
The Central Bank, which brought in the credit restrictions for the first time in 2015, has pledged to never again allow Irish banks lend many billions in mortgage housing loans that fuelled the boom in house prices and led to the economic disaster when the property bubble collapsed over a decade ago.
The regulator periodically reviews the rules but the continued huge shortage of houses and the prospect for increased house prices and rents have put the spotlight on the current review.
The rules set limits on the amounts an individual can borrow based on ratios that take into account the ability of a borrower to afford to pay back a home loan, including loan-to-value (LTV) and loan-to-income (LTI) controls. They also set limits on the amounts banks can lend into the mortgage market.
Kevin Johnson, chief executive of the Credit Union Development Association, which has 50 credit unions, said the workings of the loan-to-income cap should attract attention in the review.
"The rule on how much people can borrow being linked solely to gross income rather than repayment capacity creates anomalies," Mr Johnson said.
Mr Johnson proposed the rules be changed to match those in other European countries that take account of a borrower's net income.
"A common metric is a maximum of 50% of net income being spent on all debt repayments, including the mortgage being applied for. Those without a car loan or other debts can borrow more on their mortgage, which seems more logical than the system we have here," he said.
The Central Bank has made clear that the broad structure of the mortgage rules are here to stay.
"Since their introduction, they have played a key role in building resilience of both borrowers and lenders and have guarded against the emergence of an unsustainable, credit-fuelled housing boom," said the Central Bank's director of financial stability Vasileios Madouros.
“Engagement with the public will be a core element of our review. We know that behind the economic data and evidence that we look at, lie people’s own lived experiences.
"Understanding those experiences better will strengthen the effectiveness of our review. So I encourage people to complete our online survey,” he said.
