Wednesday 13 November 2019

Mortgage lending cap rules triggered rush for fresh borrowing

Patrick Honohan
Patrick Honohan
Charlie Weston

Charlie Weston

Proposed new mortgage cap rules led to a surge in borrowing towards the end of last year as home buyers scrambled to avoid the proposals, according to new figures from the Central Bank.

The figures show the increase in lending came in the final quarter as desperate home buyers tried to circumvent the new measures which are due to be revealed within days.

Demand for mortgages in the present quarter is now expected to contract, the Central Bank added.

Banks made it a little easier to borrow, the Central Bank said in its quarterly report on borrowing.

International Monetary Fund chief Christine Lagarde told RTE's Prime Time last night that she supported the measure to force people to save a 20pc deposit .

"I think it's a safe, secure, solid principle and many organisations around the world have been operating with such macro prudential principles," she said. "There are various tools you can use but they are necessary."

However, the leader of the largest trade union says the plans would put home ownership beyond reach of thousands of ordinary people.

Siptu president Jack O'Connor also said the Central Bank rules were "absolute nonsense". He accused the Central Bank of still trying to deal with the last crisis.

The lending limits would damage employment, dampen domestic demand and mean that only the sons and daughters of rich people would be able to afford to buy a home, he said.

If implemented as currently outlined, the proposals "would put home ownership beyond the reach of thousands of individuals and couples", he added.

Mr O'Connor said: "Many of our members have expressed concern about the impact of this proposal on them, or their children, and their chances of getting on to the property ladder."

The plans would exacerbate an already severe housing crisis, he added.

Central Bank governor Patrick Honohan said a decision on whether home buyers would be required to have a 20pc deposit in place before being approved for a mortgage would be made in the "coming days".

Prof Honohan said he expects his views on the mortgage caps would prevail.

But there is no certainty that the new rules, as originally proposed, will be approved by the 10-member Central Bank Commission, which is composed of the board of directors of the regulator.

The commission will have to approve the new lending caps, the Central Bank confirmed yesterday.

Members of the commission include representatives from the Department of Finance, a former banker, an ESRI representative and a trade unionist.

These groups are known to oppose the original proposal to force most borrowers to have at least a 20pc deposit.

Philip Farrell, who leads estate agent group Real Estate Alliance, said the measures would lead to increased pressure in rental values in the larger urban areas.

Irish Independent

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