Top banker's denial heaps more pressure on Noonan
Published 25/10/2016 | 02:30
The Central Bank was not aware of the detail of the first-time buyers' grant scheme despite assurances from Finance Minister Michael Noonan that it had "full knowledge".
Governor Philip Lane has revealed that he was consulted "only on the specific issue" of whether a tax rebate could be used to form part of a mortgage deposit under Central Bank rules.
The revelation in a letter from Mr Lane to Fianna Fáil and Sinn Féin comes after the Government altered its Budget Day announcement at the request of the bank.
The Governor wrote to the two Opposition parties' finance spokesmen outlining the risks and potential that he sees in the scheme.
Under the plan a first-time buyer can get a tax rebate worth 5pc of the price of a newly-built house up to the value of €600,000.
However, the maximum rebate from the State is €20,000.
It has now emerged that the Central Bank was in the dark about these parameters and was not asked for a view on how they might affect the market.
The letter is likely to heap pressure on Mr Noonan who told the Dáil's Budgetary Oversight Committee on September 20 that the Central was fully aware of his plans.
A spokesman for Mr Noonan said the minister was referring to the macro-prudential mortgage element of the scheme.
But a transcript of Mr Noonan's comments to the committee shows he stated: "Anything we are doing we are doing with the full knowledge of the Central Bank. It knows exactly what I have in mind and it approves of it."
"It's crystal clear from the governor's reply that the Central Bank was only consulted on one very narrow aspect of the Help-To-Buy scheme, naming the macro-prudential mortgage rules," Fianna Fáil's Michael McGrath told the Irish Independent.
"The Central Bank was certainly not consulted on the wider impact of the scheme on property prices or financial stability."
Mr McGrath also noted that there has been "no impact assessment whatsoever" of the scheme, and added: "I would have thought they would tread lightly when it came to any intervention relating to the property market."
In his letter, Mr Lane said a help-to-buy scheme based on a subsidy system runs the risk "of displacing activity that would still occur in the absence of the same".
He also said that if developers do not respond with a sufficient level of new building, "raising demand in a given segment of the housing market will just tend to put upward pressure on prices, with the sellers of properties effectively gaining more than the recipients of the subsidy".
On the other hand, he said the easing of the financial burden on first-time buyers "may support a greater level of construction of new homes".
Mr Lane said a comprehensive assessment of the scheme would require a "full-scale evaluation project, including quantitative analysis of its impacts on demand and supply conditions in the housing sector".
He said this kind of review fell outside the remit of the Central Bank, stating it is "up to the political system to make the relative assessment of the distributional impact of this scheme".