Agent view: New mortgage rules get a mixed report one year on
Published 14/02/2016 | 02:30
Twelve months after the introduction of the new mortgage rules, commentators seem to have reached a consensus that they have been bad for homebuyers, but good for financial stability.
So far, there seems to be some support for the former argument at least. It was widely presumed that tighter lending rules would benefit buyers by curtailing rapid house price inflation. However, this has not really happened. Sure, price growth in Dublin has slowed sharply since last February. But the heat has merely been displaced.
On the one hand, lending restrictions have driven some buyers out to more affordable markets in the suburbs. As well as heralding the return of long commutes, this has led to accelerating price growth in locations like Meath, Laois and Louth. The net result - higher prices in less prime locations - can hardly be considered a win for the homebuyer.
While some would-be buyers have reacted to tighter lending by leaving town, others have opted to hang in there and rent until they can amass a deposit. However, this isn't exactly working out either. The influx of bodies has led to a shortage of rented accommodation; there are currently fewer than 1,400 properties available in Dublin, compared with a long-term average of 5,200. Inevitably, this has driven sharp rental increases - again demonstrating that the inflationary pressures have just been displaced.
Sadly, with high rents making it difficult to save, the reality is that many aspiring homeowners may be renting for a long time to come.
So if the mortgage rules have not helped buyers, have they at least brought financial stability? Well, as they have prevented borrowers from overstretching themselves, the answer is probably yes - for now. However, rising rents are attracting investment and the private rented tenure is expanding.
As recently noted by the governor of the Bank of England, if investors' share becomes too big, there is a danger that any hiccup could cause a sudden exodus.
Such a sell-off could drive down prices, creating widespread negative equity - something that is clearly contrary to financial stability.
On balance, it looks like the mortgage rules have had a negative impact. However, it may take some time for the full impact of these measures to become known.
The fact that the Central Bank has committed to a formal evaluation is very positive. Undoubtedly there will be pressure to do this quickly.
But given the likelihood of lagged effects, there should be no rush and hopefully the bank will be given time to conduct its review when all the necessary data become available.
Dr John McCartney is director of research at Savills. @JPMMcCartney