WHILE there is no doubting Philip Lane’s independence as Central Bank governor, you could almost hear the collective sigh of relief from Government TDs yesterday morning when he promised to review the bank’s stringent mortgage-deposit rules this year.
Without committing to do very much about the requirement for prospective homeowners to have a deposit of up to 20% of the value of the house, Lane has given the Coalition’s TDs cover on the issue, going into the general election.
Now when they are confronted by angry members of Generation Rent who have no hope of ever realising their dream of owning a home, they can refer to the upcoming review and how that will deliver them to Nirvana.
“It’s terrible the plight you are in, but the rules are being reviewed and we will ensure you will be looked after,” is what they will say to appease their desperate constituents.
Under Lane’s predecessor, the Central Bank introduced rules which saw first-time buyers typically need a deposit of 10% of the first €220,000 cost of a home, and 20% of the remainder of its value.
Mortgages are generally limited to 3.5 times gross income for all borrowers.
First-time buyers in Dublin, where property prices are much higher than in most other parts of the country, have found it impossible to meet the high threshold while also paying rent, which has also soared since 2013.
Last summer, Finance Minister Michael Noonan called for a review of mortgage caps for first-time homebuyers. He argued that the situation had changed since the bank introduced them to damp down the market. Noonan’s intervention came on foot of wails of unhappiness from backbench TDs who found themselves getting it in the neck from a generation of people who found themselves priced out of the market.
Just this week saw a very logical and credible solution put forward by Fianna Fáil’s Michael McGrath which proposed banks taking account of rental income to offset the size of the deposit.
Of course, while a pledged review sounds promising now — and politically it is of help to the Coalition — in reality precious little will change.
As Lane laid out very clearly, from the Central Bank’s point of view, the new rules have worked. They have done what they were supposed to do. They calmed a market which was in runaway mode. The cooling-off has bought time for the under-supply of houses to be addressed.
“The case for having rules is very robust and, again, if these rules had been in place in the mid-2000s, a lot of the problems would have been mitigated,” Lane said.
Secondly, the review is only due to start in the summer and so it is likely to be well into the autumn or even later before any changes might be made. This means mortgage applications throughout the spring and early summer — the busiest time for house sales — will continue to be carried out under the current rules.
Furthermore, Lane included this word of warning in his comments. He stressed, that the rules could be tightened or loosened in either direction.
“The rules, I think, could be adjusted upwards or downwards. It’s not the case that the Central Bank picked the most severe rules. Those rules can be adjusted, recalibrated, but it’s not the case that we’d expected to see [this reviewed] every quarter,” he said.
Noonan and the Government have said they welcome the commitment to conduct the review and the 12-month timeframe is appropriate.
But not everyone is quite so sure.
Reacting to Lane’s interview, Michael McGrath called for a planned Central Bank review of mortgage rules to begin immediately to avoid a prolonged period of disruption in the market.
He said: “Potential first-time buyers and those looking to trade up will be disappointed that a review of the rules is not likely to commence for six months. There is a very real risk that this will result in the already sluggish mortgage market grinding to a halt as potential buyers and sellers wait to see the impact of any new regulations.”
But such finer details about the actual plan will be forgotten as canvassing gets into full swing in the coming days and weeks.
And for those receiving politicians at the door: Don’t allow yourselves to be fooled by promises that all will be much better the far side of an election.
The truth is, precious little will change. You have been warned.