Irish Examiner view: The Central Bank's call for mortgage prudence sounds all too familiar

Time will tell if the Central Bank's changes to its lending rules will foil or facilitate people who seek to buy their own homes 

Crucially, Central Bank governor Gabriel Makhlouf mentioned that the measures he was announcing will probably lead to a rise in house prices. Picture: Vivek Prakash/Bloomberg

Few of us are blind to the State’s housing crises. We read news every day of its most devastating effects, from couples with autistic children having to live in tents, to homeless people dying on our streets. Many are left utterly bereft of hope when it comes to owning their own home, due to the perennial lack of supply and Celtic Tiger-era price hikes.  

When the Central Bank changes its mortgage lending rules, then, everyone sits up and takes notice.

The announcement follows a review carried out by the bank, and the headline recommendation is that first-time buyers can now borrow four times their gross salary.

The fact that those rules were amended in 2015 to safeguard against the likelihood of another Celtic Tiger-type housing bubble occurring should give readers pause, particularly when the Association of Irish Mortgage Advisors has said those rules have largely served the market well since being introduced. When that bubble burst, the eventual outcome was the country being taken in hand by the IMF, after all, something no one wants to see repeated.

Some prospective first-time buyers are already failing mortgage stress tests ahead of further European Central Bank interest rate hikes. They will see the Central Bank’s intervention as necessary. Changing the rules on deposits for second-time buyers — halving the size of the deposit required from 20% to 10% — is another move designed to facilitate mobility in the housing market.

Yet the changes come amid flattening housing prices, rising interest rates, and a cost-of-living crisis. Central Bank governor Gabriel Makhlouf's briefing on the changes acknowledged that they will probably lead to a rise in house prices — a “modest” rise, according to him, but a rise nonetheless. It was particularly noteworthy that Makhlouf specifically called on buyers and banks to be prudent and not overextend themselves. 

We’ve been here before, of course. But there is a tendency for mortgage lending rules and guidelines, rigid on introduction, to become more elastic when deployed in the real world.

All of which lends an ominous tinge to Makhlouf’s rather defensive mission statement on behalf of the bank, saying it is not that institution’s role to make final decisions on mortgages for individuals. 

Only time will tell if the decisions the bank has made will foil or facilitate those individuals as they seek to buy houses.