Mortgage rules force builders to down tools
Published 21/10/2015 | 02:30
Rigid mortgage lending rules imposed by the Central Bank are forcing property prices to stagnate and discouraging builders from constructing homes.
A new survey by Davy Stockbrokers has also concluded that the property market is "clearly characterised by stagnating prices and an under-supply of land". It found the market is weaker than developers may have expected at the beginning of the year - particularly in Dublin.
After conducting a survey of home builders, it said the housing sector was locked in a state of stubborn under-supply coupled with high demand.
Analyst Colin Sheridan wrote: "Volumes and prices are generally behind builders' expectations six months ago.
"This has been primarily driven by headwinds to lending created by the Central Bank's macro-prudential rules, limiting bank lending in relation to loan-to-value and loan-to-income ratios."
Affordability has also been highlighted as a problem for customers, he said.
"The need to build additional homes in Ireland continues to create plenty of demand for housing and therefore for land from developers," he said.
However, the report says the medium-term outlook is positive. "With a return to expansionary budgets, and a significant medium-term demand for housing in Ireland, we believe that the outlook for Irish builders remains positive.
"Builders are noticeably more positive on the medium-term outlook," Mr Sheridan wrote.
Finance Minister Michael Noonan recently called on the Central Bank to review the lending rules, something new governor Philip Lane, an economics professor at Trinity College, Dublin, will have to consider.
Last week, the Central Bank insisted its mortgage lending rules have worked.
The new regulations were brought in in February.
Deputy governor Stefan Gerlach, in an address to the Society of Chartered Surveyors annual conference, said macro-prudential policies introduced by the Bank had worked "by reducing the speculative element of housing dynamics".