Saturday 10 December 2016

New rules on home loans 'must be left alone'

Published 25/09/2016 | 02:30

Central Bank of Ireland deputy governor Sharon Donnery. Photo: David Conachy
Central Bank of Ireland deputy governor Sharon Donnery. Photo: David Conachy

The Central Bank last night sent out a defiant pre-Budget message to the Government, dampening expectations of a loosening of the tough mortgage rules.

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The warning, by deputy governor Sharon Donnery, is a further sign of friction between Dame Street and the Department of Finance over fiscal control, with Ms Donnery telling the Department of Finance that adjusting home loan deposit rules could threaten stability in the financial markets.

Ms Donnery defended the current rules, which mean first-time buyers who want to buy a €400,000 property require a deposit of €58,000 - 10pc of the first €220,000 and 20pc of the remaining €180,000.

She said the rules were still in the early phase of a long-term cycle aimed at protecting the financial system as a whole. Adjusting these rules in response to "temporary and minor fluctuations" in the housing market would be unwise, she said.

The department has already called on the Central Bank to modify mortgage lending rules to help first-time buyers as concern grows within Government that their inability to secure loans is worsening the housing crisis.

Figures released by the Central Statistics Office (CSO) last week show residential property prices rose nationally by 6.7pc in the year up to July.

Speaking in Wexford on Saturday night, Ms Donnery said the loan-to-value and loan-to-income mortgage rules were vital.

"Learning from the crisis, the bank has taken clear and decisive action through the introduction of the mortgage measures," said Ms Donnery.

"It would be unwise to seek to adjust the rules in response to minor and temporary fluctuations in the state of the financial cycle. Such a fine-tuning approach could actually aggravate financial instability if revisions proved to be unwarranted or badly timed."

Proposals put forward by the Department of Finance as part of a Central Bank review would see mortgage lenders given greater flexibility to breach the lending rules.

However, Ms Donnery said the benefits of the guidelines were "often unobservable" but that the costs of the measures can be immediately felt.

"The objective of the measures is to enhance the resilience of both borrowers and the banking sector.

"Stable rules are valuable for both households and mortgage lenders in eliminating avoidable uncertainty about the regulatory regime.

"Even if systemic risks were not emerging in the financial sector, borrower-based measures may still be necessary."

She also addressed the impact of the UK vote to leave the EU at the Dublin Economic Workshop Annual Economic Policy Conference, saying its impact on the Irish economy was uncertain but was likely to be negative.

She added: "Ireland is the most exposed European economy to the potential effects of Brexit.

"The UK accounts for a large percentage of Irish imports and exports. Labour flows and cross-border investment linkages are considerable and certain domestic Irish banks have large exposures to the UK."

Sunday Independent

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