EAMON QUINN: ‘Refinements’ take sting out of mortgage rules

The Central Bank had by accident dropped into a political fight which it was never going to lose, but has nonetheless avoided a much messier outcome by sanctioning only minor changes to its inflexible mortgage lending rules.

Since their unveiling in February 2015, business people most connected to selling mortgages and building houses had led the charge, highlighting the ‘hard cases’ thrown up by the rules.

There was no question that the old rules were unwisely inflexible, pushing out the prospects for many would-be-first-time-buyers from securing a deposit, as prices started to accelerate.

It was not the first time that policymakers here were caught out by a raging house market. The boom and bust ended in misery when through no fault of their own many householders dropped into arrears and faced losing their homes, as the economy crashed.

Amid the failure of policy in the austerity years to build social and private homes when land prices were rock bottom, the surge in prices again surprised the Government and regulators.

But emotive calls that the restrictions condemned a young generation to “rental hell” should be called out as the special pleadings of interested industry groups.

The rules were inflexible and a more subtle range of levers should have been brought in from the start. The rules are part of the grandly named package of macro-prudential measures — which translates roughly into the Central Bank being deeply scared of ever again allowing mortgage lenders to drive home credit to ridiculous levels.

It must also be recalled that the focus on residential mortgage controls obscures the fact that the commercial property crash was the main reason that the banks and country faced bankruptcy in 2010.

Unveiling yesterday what he called “limited refinements”, Central Bank governor Philip Lane said the new and slightly looser rules were justified by new research.

Mr Lane has always insisted the Central Bank would not bend to industry or any other political pressure to scrap the rules. He said politics played no role in the bank’s reforms.

What was left unsaid, however, was that the ‘Help to Buy’ scheme unveiled only last month by Finance Minister Michael Noonan probably helped in turning down the political heat.

Mr Lane said it was the housing market, the economy and rising incomes that were pushing up prices, not the bank’s lending restrictions. It was in everyone’s interests that the housing market would work efficiently, he said, for renters and social and private householders.

The Central Bank had turned down lending restrictions based on regions because other anomalies could occur.

He said that new supply could even put downward pressure on prices.

Standing by the rules, Mr Lane suggested that Ireland and its open economy needed the rules more than most.

The muted reaction of industry players probably shows that the sting has been taken out of the issue.

After all, there are much more pressing housing issues, including homelessness, borrowers paying Europe’s highest mortgage rates and the scar of home loan arrears, for the Government and Central Bank to get on and help resolve.

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