Mortgage deposit rules likely to stay, hint Central Bank

The Central Bank has hinted that it will not change mortgage deposit restrictions when the first review of the rules is published in November.

In a speech in Dublin at the weekend, deputy governor of the Central Bank Sharon Donnery said it would be unwise to adjust the rules at this stage.

Under the current regime, first-time buyers need a 10% deposit for the first €220,000 of a property price and 20% for the balance. All other buyers require a 20% deposit. The rules also require that banks only lend three-and-a-half times the income of applicants.

The Central Bank’s rules introduced early last year are designed to protect the financial sector from risky lending which caused the financial meltdown from which the Irish banks are still recovering.

In September, the Department of Finance called on the Central Bank to change its lending rules to help first-time buyers.

However, Ms Donnery told the Dublin Economic Workshop that it would be a mistake to change the rules at this early stage.

“Learning from the crisis, the bank has taken clear and decisive action through the introduction of the mortgage measures,” she said.

“It would be unwise to seek to adjust the rules in response to minor and temporary fluctuations in the state of the financial cycle. Such a fine-tuning approach could actually aggravate financial instability if revisions proved to be unwarranted or badly timed.”

Ms Donnery said stable rules were vital for both borrowers and lenders to avoid uncertainty.

“The objective of the measures is to enhance the resilience of both borrowers and the banking sector. Stable rules are valuable for both households and mortgage lenders in eliminating avoidable uncertainty about the regulatory regime.

“Even if systemic risks were not emerging in the financial sector, borrower-based measures may still be necessary,” said Ms Donnery.

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