Michael Noonan to ask for review of mortgage deposit rules

Finance Minister Michael Noonan will today ask the Central Bank governor to review mortgage deposit rules for buyers, amid suggestions that borrowers cannot raise the funds to purchase homes.

Mr Noonan will discuss pre-budget issues in the scheduled meeting with outgoing governor Patrick Honohan, including the deposit rule which some argue is shutting first-time buyers out of the market.

Mr Noonan faces pressure, especially ahead of the election, to scrap the rule where buyers must have 20% or more of a deposit. While builders want it abolished, economists and experts have warned about unnecessary further interference in the property sector which could in turn see house prices shoot up even further.

The mortgage rules have been in place since February but do not apply to first-time buyers, as long as the property is valued at less than €220,000. It is expected that the review that Mr Noonan wants the Central Bank to do may not be completed until the year end or early next year.

Young buyers in Dublin are often paying more in rent than they would expect to pay for a mortgage but are struggling to raise enough cash for deposits under the new rule. Many homes in the capital, even apartments, are selling above the threshold whereby the deposit rule now applies.

Speaking to Newstalk’s Pat Kenny show yesterday, the finance minister said that with the property market overheating in Dublin “prudential rules were good”. However, he said the rule needed to be reviewed. “It controlled prices and it stopped that [the overheating].”

Mr Noonan said the Central Bank was reviewing data and he would ask it to begin a review process.

The minister’s spokesman said the meeting between the two would focus in general on the mortgage market .

“There is no timeline and no preference, the minister will ask if is fit for purpose.”

Central Bank officials last night said that a periodic review was factored into the new rules agreed this year.

A statement added: “The key objective of these regulations was to increase the resilience of the banking and household sectors to the property market and to reduce the risk of bank credit and house price spirals from developing in the future. The Central Bank is continuing to monitor the implemented measures on an ongoing basis, particularly with regard to achieving the stated objectives of the measures and monitoring any unintended consequences. This monitoring is ongoing and will inform any future decisions in this area.”

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