It's now just over seven years since the Central Bank introduced measures to ensure prudent and sustainable lending into the Irish house market (February 2015), and a considered review on necessary measures into the future will be decided upon later this year.
In advance, a date of March 16 looms now for the end of a period of public consultation on the issues involved before continuing on into a major open conference with international expert input: then, in the second half of this year, changes might be afoot as the Central Bank acknowledges “We are very aware of the challenges that the current housing market poses for many people, especially younger generations.
“At their core, these challenges stem from an underlying imbalance between the demand for, and supply of, housing,” it says, while clearly conscious of the impact of any relaxation, changes in loan to value (LTV) or loan to income (LTI) may have in terms of borrower instability, or further driving up house prices if more money is introduced into the overall market.
This period now ending comes after a first tranche of public engagement since last summer, in which over 4,100 online submissions were made to them; 99% from private citizens, borrowers and from aspiring home buyers, along with three ‘listening events’.
Since mid-2021, and into 2022 in advance of any significant shift of policy or lending restrictions whilst still maintaining a sustainable mortgage market, the Central Bank had engaged with a wide cross-section of Irish society, from vested interests, civic bodies and other ‘stakeholders,’ (42 responses), plus research panels along with private citizens by the thousand.
The majority of the latter contributors were generally based in urban areas, where the market to purchase is tightest, and prices highest. Almost 75% of private responses were from intending purchasers in Leinster, an over-representation compared to the 55% share the province has of the Irish population. And, some 42% of the individual respondents were privately renting their accommodation.
Broad support was shown both by panels and private respondents for how the restrictions introduced in ‘15 have a role to play as a permanent feature in the market (71% approval) and 53% felt the measures “have been successful at improving borrower and bank resilience. A smaller percentage, 39%, agreed that the measures were effective in preventing another credit-fuelled house price boom.
The LTI and LTV ratios typically of caping mortgages at 3.5x income (there’s some flexibility to go beyond these restrictions in 10% of cases) have had broad support too across the political spectrum in terms of capping exuberant lending, or borrowing.
But, given their impact, routes to some higher borrowing levels have emerged, including the anticipated First Home Shared Equity Scheme, which are more cognisant of repayment levels which, in many situations, will address the anomaly that a buyer/couple who can afford a certain level of rent don’t qualify for a mortgage with lower monthly replacement than the rents they are managing.
Among those currently arguing that the measures have had effects beyond their objectives are Property Industry Ireland (PII), a lobbying body within the overall business and employer group IBEC, and which reprsents the property and construction sectors.
In a submission to the Central Bank at the start of this year, the sectoral body PII argued that the Bank’s macroprudential rules are now “outdated and need to be amended to reflect new economic realities.” Latest studies and a report from the banking regulator have shown that Irish banks’ lending policies have improved markedly since 2015, with 85% of defaults related to loans going back to the ‘Boom’ years.”
Now, pushing for change, PII says while the Central Bank’s measures (among the strictest in the EU) “have had their desired effect” since 2015, the past six years, it states that the economic context in Ireland has changed significantly since the rules were introduced and argues that the mortgage measures “are now restricting homeownership opportunities for a generation of first-time buyers, young families, and lower-income households.”
Joining others who say net income figures may be more relevant than ones of gross incomes (a borrower or couple need a gross salary of €90,000 pa to afford a 905 LTV on an ‘average’ new home purchase at €350,000) the property and construction body PII’s submission suggests that a debt service ratio should replace the current loan-to-income limit, taking into account how a household has available to spend after taxes and other loan repayments are taken into account.
“This sets a limit on how much a household can pay in mortgage repayments, based on affordability,” they say.