Sunday 15 September 2019

Mortgages: Five reasons why Central Bank plans are bonkers

Patrick Honohan
Patrick Honohan

Ailish O’Hora

WHILE checks and balances are important ways of controlling markets if introduced and monitored properly, this latest intervention by the Central Bank seems bonkers.

While still at consultation stages, the move designed to cool the housing market by introducing caps on lending seems ill-timed, clumsy and will cause more instability. Loose lending has been a problem as we know from the past and other countries have implemented similar rules but here are five reasons why this plan is not a good one:

1. Interest rates: Interest rates in the medium to long term will only go one way and that’s up. This will naturally curb the housing market and will also hit cash-strapped punters trying to buy a house as well as those hoping to move on from negative equity and/or up the ladder.

2. Timing: What will happen is that the move will fuel the housing market in the short-term and kill it off from when the rules are introduced. This will also drive the already mad rental market, particularly in Dublin, even madder.

3. Regulation and protecting the consumer: Who will police the move and can it be monitored. Not just banks and credit unions but mortgage brokers too, remember they make money by selling as many mortgages as possible. Who and how will it be policed?

4. Cash buyers: This will do nothing to stop cash buyers, particularly in the capital, where first time buyers are already being pushed out of the market. In fact, it is likely to make them more aggressive in the short-term.

5. Bubble: There is no bubble in the property market as the growth is not credit-driven. However, there is a supply/demand issue, again really only in Dublin. These plans will do nothing to solve that problem either. And the urban/rural divide that we already see will  only widen as a result of the meddling.

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