20% mortgage deposits put ownership out of reach

Just 15% of people believe they will be able to afford a mortgage under Central Bank proposals that would require applicants to save a 20% deposit.

The deadline for submissions to the Central Bank on the new proposals closed at midnight on Monday, with 110 individual submissions received as well as 47 responses from industry groups.

It emerged yesterday that the Department of Finance is also concerned about some aspects of the proposals, fearing they will push up rents by keeping home ownership out of the reach of many people.

That view is echoed in a Red C opinion poll of more than 1,000 people conducted on behalf of the Society of Chartered Surveyors Ireland.

It found only 15% of those questioned would be able to afford a 20% deposit, and seven out of 10 respondents said the 20% rule was too restrictive.

About 80% of those polled said the new rules if implemented would benefit only cash buyers and the well-off, while half of those questioned said that they would be likely to source some of the 20% deposit through other lending — a view described as “extremely worrying”.

Simon Stokes, chairman of the Residential Agency Group of the SCSI, said: “The fact that one in two people polled by RED C for the SCSI said that they would source the 20% deposit from unsecured lending sources including credit unions or through bank loans is a real concern as it could result in households taking on more credit risk — which is the opposite of what the Central Bank rules are intended to do.”

The SCSI has instead proposed deposit limits of 10% to 15%, introduced on a phased basis with some flexibility in relation to income level limits.

Under the Central Bank proposals, mortgages could only be provided on the basis of up to 3.5 times the applicant’s salary.

Mr Stokes said: “The survey indicates that half of the population would be able to source a 5% deposit while 38% would be able to afford a 10% deposit. However, only 15% say that they would be able to source a 20% deposit.

“Therefore it’s clear that while sourcing a 10% deposit — the normal deposit sought by banks — is already a real challenge for most people, sourcing a 20% deposit is likely to be very difficult for most prospective buyers.”

The Central Bank said that it would be reviewing the submissions it received with a view to publication of completed guidelines early next year, with the new rules implemented in the first quarter of 2015.