Head of Central Bank ‘had little part’ in house buying plan, contradicts Michael Noonan

The head of the Central Bank has contradicted Finance Minister Michael Noonan’s Dáil claims he was “on side” over the controversial €20,000 help-to-buy budget scheme, saying he had minimal involvement in the plan.

Central Bank governor Philip Lane outlined the situation in separate letters to Fianna Fáil and Sinn Féin finance spokespeople Michael McGrath and Pearse Doherty yesterday — causing a fresh political row over the scheme.

Under plans announced on budget day earlier this month, first-time buyers will be able to receive a tax rebate of 5% of the cost of their property if they buy a newly built home.

While the rebate will be capped at €20,000 — 5% of a €400,000 home — this support fee will still be available to people buying a first-time house worth up to €600,000.

Responding to criticism of the measure in the immediate aftermath of the announcement amid claims the money will in reality support developers not home buyers and force prices higher in the short to medium term, Finance Minister Michael Noonan said Central Bank governor Philip Lane was fully behind the plan.

However, in a detailed letter to Mr McGrath and Mr Doherty yesterday, Mr Lane said while there are positives and negatives to the scheme he was “consulted only on the specific issue of whether a tax rebate would qualify in meeting the deposit requirement” and had minimal involvement in the budget plan details.

Mr Lane said before the budget he told Mr Noonan that any moves “should be sufficiently targeted to avoid material aggravation of current distortions in the residential property sector”.

Michael Noonan

While noting that a “comprehensive assessment would require a full-scale evaluation project” and that this is outside of the Central Bank’s remit, Mr Lane said the help-to-buy scheme as it stands poses positives and negatives for buyers.

And despite noting the positive step last week of reducing the minimum deposit from 80% to 70%, he said the scheme still includes potential problems, such as:

• “It runs the risk of displacing activity that would still occur in the absence of the scheme.”
• “If there is an insufficient supply response, raising demand will just tend to put upward pressure on prices.”
• “Some households may opt to borrow more in order to purchase more expensive properties”

Sinn Féin’s Pearse Doherty criticised Mr Noonan last night for claiming Mr Lane was “on side” on the issue, claiming the finance minister had misled the Dáil.

However, a Department of Finance spokesperson said while the Central Bank was contacted before the budget it is the responsibility of Government — not the financial watchdog — to decide on policy and that as such there was no need to seek Mr Lane’s opinion.

He added that while the Central Bank has not conducted an evaluation of the scheme, the department has been thorough in its pre-budget examination of the help-to-buy plan’s impact.