Homebuyers 'will get risky loans to beat mortgage cap'
CAPPING mortgage loans at 80pc of the price of a house will lead borrowers to gamble on risky loans to make up the difference, the head of the country's biggest bank warned.
Bank of Ireland boss Richie Boucher warned of potential unintended consequences of the controversial lending cap, which the Central Bank is planning to introduce next year in a bid to cool the rising property market.
He said many house hunters would be unable to save the 20pc deposit they need and could turn to riskier and more expensive unsecured loans to make up the deficit.
"There is an obvious concern here we have as to whether customers take out unsecured debt to meet the loan-to-value rules," he said.
The unusually frank intervention came as Mr Boucher addressed TDs and senators at the Oireachtas Finance Committee.
Asked by Liam Twomey TD whether a 20pc deposit was simply too high, Mr Boucher said it would be a struggle for first-time buyers who "by definition are starting out in life".
He said the Central Bank rules would have a "material" impact on borrowers.
The cap would mean that first-time buyers would need a deposit of €60,000 in order to buy a €300,000 home. The Government is already looking at making it easier for buyers, by guaranteeing a portion of mortgages in order to allow people to effectively loan up to 90pc.
Labour TD Ciaran Lynch said that 20pc deposits for first-time home buyers would be very challenging, but asked Mr Boucher whether Bank of Ireland would be happy to continue lending 90pc of a house price if such an insurance scheme was available.
"We would be very interested in assessing and looking at such a proposal. It's something we would (participate) in," Mr Boucher said.
Bank of Ireland has operated in markets where insurance schemes such as the one being considered by the Government operate, Mr Boucher said.
But the detail of such schemes, including who the insurer is and whether they will be around for the full life of a mortgage, is an important issue, he added.
In October the Central Bank proposed a dual cap on mortgage lending as part of a plan to insulate the banking sector from the risk of a new crash.
The new Central Bank rules mean that house buyers will be able to borrow a sum no greater than 3.5 times their salary.
But limits based on borrowers' income would not be problematic, Mr Boucher said.
'Ability to repay', based on a family's income, is the primary criteria Bank of Ireland uses in deciding whether or not to make a loan, he said.
Bank of Ireland has not yet made a submission to the Central Bank setting out its view on the proposed mortgage rules - but is considering a position paper before the public consultation closes in December. Details of the paper would be made public.
In relation to customers who have bought homes but fallen behind on repayments, there was frustration yesterday from TDs over Mr Boucher's failure to state whether or not the bank has written-off mortgage debt in cases of personal insolvency.
The bank has previously stated that its policy is to veto any such proposals.
The taxpayer's stake in Bank of Ireland is valued at €1.3bn, based on current prices, and is in addition to €6bn returned by the bank to the State, the bank's head told TDs and Senators.
The State has made a €1.2bn profit on the €4.8bn Bank of Ireland rescue and continues to hold a 14pc stake in the bank.
But he was challenged on those figures by Deputy Pearse Doherty, who said the bank was including fees and interest as loan repayments.
Bank of Ireland said it is now the biggest lender in Ireland, including accounting for 50pc of non-property lending to small and medium enterprises (SMEs), 50pc of new lending into agriculture, 30pc of corporate banking, 25pc of savings products, and one in three mortgages.