Banks have returned to reckless mortgage lending
BANKS and building societies have been accused of learning nothing from the property collapse after it emerged that some of them are continuing to give out risky loans to first-time buyers.
They were also accused by the Financial Regulator of being more interested in competing with rival banks than in designing mortgage products to suit consumers.
Deputy regulator Jonathan McMahon warned the lenders that he would force them to lend less to first-time buyers if they did not clean up their act.
The probe by the regulator comes at a time when some potential borrowers complain that it is almost impossible to get mortgage approval.
Some seven lenders are currently active in the first-time buyer market, the regulatory officials said. This is understood to refer to AIB, Bank of Ireland, EBS, Irish Nationwide, KBC Homeloans, Permanent TSB and Ulster Bank.
In a review of mortgages for first-time buyers, officials from the regulator's office found that lending standards had improved. But banks and building societies were told: "More can be done, and needs to be done, to improve practices".
The review found that lenders were:
- Failing to properly assess what mortgage types were best suited to borrowers. This involves working out if a new buyer would be better off with a variable rate or a fixed-rate mortgage and properly assessing the income of borrowers.
- More concerned with following what their competitors were doing than with lending prudently.
- Not properly assessing the risks being taken when issuing mortgages to first-time buyers.
It is understood that regulators are concerned that some lenders are still lending people high multiples of their salaries.
Many of those who previously borrowed six to eight times their salaries are now struggling to meet their repayments after suffering pay cuts and the imposition of the income levy.
Mortgage expert Karl Deeter of the Irish Mortgage Brokers Association said the probe proved that some lenders had learned nothing from the crash.
Regulatory staff said that almost four out of 10 new mortgages currently issued were going to first-time buyers.
"There are also indications that a number of banks are planning to increase business in this area," the regulator said.
But in a letter to lenders, Mr McMahon said standards needed to be raised.
"The Central Bank and the Financial Regulator will intervene where they are not satisfied that adequate safeguards exist within a bank," he wrote.
The letter spelt out that errant lenders would be told to impose a a strict limit on the value of the mortgage that it can issue, relative to the house price.
Caps will be put on the income multiple and limits will be imposed on the terms of mortgages.
In the past poor decisions had been taken by mortgage lenders which ended up costing the banks and homeowners.
But the legacy of bad decision-making has not gone away, Mr McMahon pointed out in the letter to lenders.
Banks were told to enhance the way they assess risks and to examine profitability measures more closely.
They were also told to ensure borrowers are only given mortgages that are suitable for them.