Restrictive lending stopping people from buying homes

An association of financial brokers has criticised the Central Bank’s lending restrictions, describing the measures as “excessive” policies that are creating “a lost generation robbed of the opportunity to buy their own homes”.

The Daft.ie rental report for the second quarter of the year, released earlier this week, stated that rents have risen nationally by 11% year-on-year and that there were 20% fewer homes for rent than on August 1, 2015.

Rachel McGovern, chief operations officer at the Professional Insurance Brokers Association, claimed the report “provides the latest evidence that in several locations across the country it is cheaper, in some cases considerably so, to buy a property than rent one”.

“What should be startling evidence for policy makers and the Central Bank, even allowing for a 2% rise over current interest rates, in very many cases it would still be cheaper to buy than rent. This is an absolute travesty for those in the 20s and 30s age cohort especially,” Ms McGovern said.

PIBA said counties Louth, Meath, Laois, Clare, Roscommon, Kilkenny, and Wexford are examples of areas in which it would still be cheaper to buy than rent, even if interest rates were to increase by 2%.

“In highly sought after areas like Dublin 2 it would only be marginally more expensive to repay a mortgage than rent. A three-bed house with the 2% stress test margin would involve a mortgage repayment of €2,338 while the current rental level for such a property is €2,097. In Dublin 9 it’s €1,700 and €1,561 respectively,” Ms McGovern said.

In a submission to the Central Bank in November 2014, PIBA said the lending rules “are not appropriate to deal with increasing the resilience of the banking sector at this point”.

“LTV (loan to value) restrictions should only be used occasionally, at those points in the financial cycle where there is a real danger of growing systemic risks leading to financial instability,” the submission read.

“Demand for rented accommodation will increase thus pushing up rents and causing a vicious circle for those attempting to save up for a deposit,” it added.

Rachel McGovern: Lessons of the financial crisis must be learned
Rachel McGovern: Lessons of the financial crisis must be learned

PIBA has since called for the Central Bank to reduce the 20% deposit requirement to 10% with the maximum loan amount being increased from 3.5 to 4.5 times income.

Ms McGovern said home ownership has formed an important element of financial planning in Ireland.

“Home ownership has always been an important contributory factor towards growth in personal wealth over the longer term,” she said.

“That is particularly the case where house prices have dropped considerably and interest rates are at low levels.

“Home ownership, once achieved at affordable prices, underpins sustainability and good financial planning.

“The lessons of the financial crisis need to be learned.

“But if our country goes overboard in attempting to eliminate all risk there is a grave danger that in doing so it will also eliminate opportunity for individuals and families to grow their personal wealth,” Ms McGovern said.


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