Lending rules could be made tougher

The Central Bank has warned it will tighten new mortgage restrictions further if they prove not to be robust enough or if there is evidence of a new property bubble emerging.

“We reserve the right to tighten them and ramp them up,” Governor Patrick Honohan said while acknowledging that first-time buyers were not to blame for the property crash.

Under the new rules, which are expected to be in force within days, banks will be able to lend first-time buyers 90% of the cost of a property up to a value of €220,000. Above that, the 80% loan-to-value limit will apply. The regulations are aimed at avoiding a repeat of the 2008 property crash. Mr Honohan said the decision to allow first-time buyers some relief was taken, as those looking to get on the property ladder should not be unfairly punished.

“First-time buyers of the smaller houses never caused a boom and it is stopping a boom and preventing a credit-chasing prices bubble that we’re trying to ensure against,” he said.

Fianna Fáil welcomed the easing of restrictions in relation to first-time buyers, but the party’s finance spokesman Michael McGrath said thousands of non-first-time buyers could be trapped in unsuitable accommodation due to the onerous 20% deposit rule.

Property analysts gave a broad welcome to the new measures, but concern was voiced that problems in the housing market remain.

New Beginning, an organisation that helps those in mortgage difficulties, said the rules are not a panacea and the market remains dysfunctional. The DNG property group said they should bring clarity and greater certainty to the market.

Ronan Lyons, economist with Daft.ie and Trinity College Dublin, welcomed the relief for first-time buyers but warned that, as banks will retain a measure of discretion in relation to income limits, some borrowers could be treated more favourably than others.

“There might be discrimination by banks against certain categories of borrower,” he said, speaking on RTÉ’s Today with Sean O’Rourke.

Mr Lyons said the new rules might not keep property prices down. “Canada has a long history of this policy and the average house price there is €300,000,” he said.

The new rules come as the latest CSO figures show residential property prices nationwide rose by 16.3% in the year to December. The rate of growth was up slightly from the year-on-year rise of 16.2% seen in November and matched the highest growth level since September 2006.

Dublin house prices were 22.5% higher than at the end of 2013 and increased by 0.3% in December.

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