Tuesday 16 January 2018

Housing policy built on sand

THE Government came to power with all sorts of smart ideas to limit mortgage lending.

Those ideas are gathering dust but their intention was clear: to prevent banks making reckless loans to individuals with little chance of repaying the money.

The easiest way to do this is to make all mortgage lending non-recourse, so banks take the hit when they lend foolishly to people with no chance of repaying.

Another mechanism is to limit the size of a mortgage. Both methods are crude but they have the advantage of being well-tested in other countries.

Despite everything that has happened in this country, we still have exactly the same rules we had in the lead-up to the bust and it looks like this will lead to the same consequences.

Last week, we saw the beginning of the new madness with KBC Bank heralding the return of the 90pc mortgage.

It really is impossible to see how 90pc mortgages can be a good thing at a time when taxes are rising and interest rates are at record lows but certain to rise again.

The same bank obviously believes interest rates are heading higher because it is very reluctant to allow borrowers to fix rates for more than three years.

KBC's madness would hardly matter were it not for the herd mentality among our banks.

We saw this mentality in the previous decade and we can still see it today where the banks hike rates together and introduce me-too products at regular intervals.

The Government has to dust down its manifesto if KBC's latest offer is not the beginning of another disaster.

Irish Independent

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