Rule change will mean mortgage lending surges to €7bn next year
Published 25/11/2016 | 02:30
The loosening of lending rules for new buyers is likely to see mortgage lending surge.
Banking analysts said mortgage borrowing could shoot up by 25pc next year to €7bn.
The rule changes will prompt more house building and make it easier for young people to get a home loan, they said.
But there are also warnings that the move will lead to higher property prices.
From the start of next year first-time buyers will be able to qualify for a mortgage with a 10pc deposit, if they meet other criteria.
At the moment new buyers need a 20pc deposit for any amounts borrowed over €220,000.
Philip O'Sullivan, economist and banking analyst with Investec Bank, is now forecasting mortgage lending next year of €7bn.
This is up from around €5.5bn this year, a rise of 25pc.
Davy stockbrokers analyst Conall Mac Coille said he expected the relaxation of the lending limits to push up property prices and increase mortgage lending.
"On balance, the rule changes will lead to a modest stimulus to credit supply, which is likely to push up on house price inflation next year," he said in note to investors.
Latest figures from the Central Statistics Office show that the annual rate of residential property price inflation has picked up since June.
It is currently running at 7.3pc nationwide - the fastest pace in 15 months.
Mr Mac Coille said the changes to the Central Bank rules would give buyers an important psychological boost.
"The rule changes could have a significant impact on sentiment. Many potential first-time buyers may have had a false perception that they required a 20pc deposit before purchasing a home," he said.
One of the reasons given for changing the rules by Governor Philip Lane was because they were seen as too complicated by many new buyers.
The lending rule changes come in from January, and will run in conjunction with the Government's help-to-buy scheme, which gives a tax rebate of 5pc of the property value for new homes.
The scheme allows first-time buyers to apply for a tax rebate of up to €20,000 when buying a new property.
It is expected that this will fuel house price growth into the new year.
Meanwhile, there were robust exchanges in the Dáil in relation to homelessness.
During Leaders' Questions, Tánaiste Frances Fitzgerald said the dysfunctional housing market was one of the "most scarring" legacies of the Fianna Fáil government.
"What we have done is taken the situation we have been faced with,'' she added.
Fianna Fáil's Housing spokesman Barry Cowen accused the Government of failing to do enough to combat the homelessness figures.
He said the figures had risen by 48pc in one month and warned that the new mortgage lending rules would lead to further house price inflation.