IMF sees even tighter mortgage restrictions

The IMF has put its full weight behind the Central Bank mortgage rules, and recommending the restrictions should be widened to take in a full picture of all debts of households here.

The mortgage rules have been widely criticised by mortgage brokers and others in the property industry as overly restricting lending to young borrowers. According to the industry, the loan-to-value (LTV) and loan-to-income (LTI) limits are too severe.

However, in its so-called Financial System Stability Assessment of Ireland’s banking system, the IMF insists that the mortgage rules are here to stay.

Moreover, the fund recommends the Central Bank extend the reach of the loan-to-income rule to encompass all of a household’s debt when the delayed Central Credit Register is up and running.

“Given the importance of mortgage lending to financial stability, the Central Bank should maintain the LTV and LTI limits,” the IMF bluntly said. The fund also highlighted some concerns about both residential and commercial property prices.

On residential prices, it said the trend in price increases is “strongly upward” and could pose new problems for an economy still dealing with the legacy of the property crash.

It also said that early signs of potential overvalued commercial property prices “should not be overlooked” and the Irish commercial property market could be vulnerable should foreign investors pull back investments.

And “pockets of weakness” in the banking system remain because of high levels of household and SME debts, it said. Non-performing loans still weigh on the banks’ balance sheets and more action is required to resolve the issue.

However, the IMF report does not put forward new proposals and does not say whether it favours write-downs of mortgage debt as advocated by many debt advisers here.

With the EU and the ECB, the IMF was part of the troika of lenders which funded the Irish state during the crisis and gave its approval to the reshaping of the Irish banking system.

“Further efforts are needed to advance the cleanup of bank balance sheets with a focus on long-overdue mortgages, including streamlining the legal process; continued supervisory intervention for the resolution of commercial loans; and a faster pace of asset disposal in the SME segment,” the fund said.

It repeated the warning sounded by the Central Bank earlier this week of the effects on Ireland from the Brexit vote, though it concludes that the effect on the banking system “should be manageable”.

In a separate analysis, the IMF gave a broad support to government policies, including its ‘rainy day’ fund. It said it backed moves to shift away from direct taxes on work and “reducing the burden on middle-income households”.

In the so-called Article IV report, the fund said that the rebound of the economy was “exceptional”. It forecasts GDP will grow 4.9% this year and slow to an expansion of 3.2% in 2017.

“The positive economic performance is expected to continue, but the UK vote to leave the EU amplifies downward risks.

"Over the medium term, Ireland’s economy is likely to be affected by spillovers. The severity of the impact is, however, difficult to gauge at this stage, and will crucially depend on the future relationship between the UK and the EU,” the IMF said.


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