Friday 28 October 2016

Charlie Weston: Banks now so prudent there will be little building

Published 21/09/2016 | 02:30

'Yes, we need banks to act prudently, but not if it stops houses being built.' Photo: Ben Birchall/PA Wire
'Yes, we need banks to act prudently, but not if it stops houses being built.' Photo: Ben Birchall/PA Wire

The findings that Central Bank mortgage rules are holding back house-building need to be taken seriously by the notoriously unresponsive regulators.

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Central Bankers have shown precious little concern, and even less action, when it comes to rip-off mortgage rates, home-loan arrears levels and ever-rising motor insurance premiums.

The Central Bankers have also been rigid on the need to limit mortgage lending to ensure banks act prudently, rather than stupidly, as they did in the past.

The rules are in place because regulators also want to ensure consumers do not end up being over-indebted, given we are still dealing with a legacy of huge numbers in mortgage arrears.

The rules are certainly prudent as far as banks are concerned - but are they prudent, as presently constituted, for the economy as a whole?

One often overlooked aspect of the rules is that they do not apply to lending by Irish banks outside the country. Bank of Ireland has a large mortgage book in Britain.

That aside, the ESRI study has found that the lending restrictions are set to keep property prices here down and keep mortgage lending muted.

This situation will mean less profit for builders who will react by constructing fewer homes at a time of chronic housing shortages.

And like it or not, our capitalist system means builders will not construct homes if there is no profit in it.

The rules have already been blamed for stopping millennials buying homes, forcing them to pay rents that are now at record levels.


There is a suspicion the real reason the rules were introduced was to placate the European Central Bank (ECB), an institution we know to our cost cares not a jot about Ireland. The ECB worries only that banks don't collapse again, and about little else in this country.

Now the ESRI has produced empirical evidence that the mortgage limits are slowing down desperately needed house builds, the Central Bank will have to take notice.

The bankers are currently sifting through submissions on the rules from a range of bodies. This is part of a review of the rules.

Governor Philip Lane has previously said the restrictions could be further tightened instead of loosened. He said he will need strong evidence to change the rules.

Well, he has now been given strong evidence.

Yes, we need banks to act prudently, but not if it stops houses being built.

So rather than get rid of the rules, some tweaking to relax them, particularly for first-time buyers, would seem to be a sensible step.

Irish Independent

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