Bank ‘backing down’ from mortgage rules

New Beginning has accused Central Bank governor Patrick Honohan of "bowing to political pressure" when he indicated that there may be an easing of the 20% mortgage deposit rule.

The lobby group that helps distressed mortgage holders was commenting on the hint last weekend from Mr Honohan that the lending curbs might not be as severe.

Last month, the Central Bank announced new mortgage rules requiring home-buyers to pay a deposit worth 20% of the value of the property.

The regulations were due to come into effect on January 1.

Mr Honohan said the introduction of a mortgage insurance would allow a person to pay just 10% of the value of a home, if the other 10% was covered by the insurance company.

However, lawyer Ross Maguire, one of New Beginning’s founders, said he thought the bank was bowing to political pressure.

Mr Maguire said it would be very difficult for people to raise a 20% deposit on a house but no one wanted a debt fuelled property spree, and there had to be a way of avoiding that.

“One way of avoiding that is not to penalise people but to prevent the banks from lending too much,” he said. “The whole idea of having a 20% deposit is not to penalise the first-time buyer but to keep prices down.

“My concern is it is the first time the Central Bank has indicated that it might try and regulate the market and already they are backing down. That does not augur well for the future.”

Mr Maguire said 20% appeared to the internationally accepted norm.

The Institute of Professional Auctioneers and Valuers that represents almost 1,000 firms said the mortgage rule change hint from the Central Bank came as a relief to a market that was in “a state of shock”.

IPAV chief executive Pat Davitt said a measured response was needed, not a sledgehammer.

“We do believe the Central Bank needs to keep a very close watching brief and intervene if lending shows signs of heading into danger territory,” said Mr Davitt. “However, this is not where we are at now.”

Meanwhile, New Beginning expects to get preliminary views from the banks on the group’s plan to purchase 15,000 mortgages from later this month.

New Beginning wants to pay for the mortgages held by the country’s most indebted households with bonds from a Maltese-registered company. Investors have committed to investing up to €2bn in the private equity fund.

The distressed borrowers could either write off their mortgage and walk away or rent the properties with an option to buy in the future.

“The banks will be replacing a non-performing loan with a performing bond that is traded on the European Whole Securities Market that pays interest, so that is of immediate benefit to their balance sheet and far preferable to pursuing repossessions.” <


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