Saturday 20 January 2018

Banks lending five times earnings

Mortgage loan agreement application
Mortgage loan agreement application
Sarah McCabe

Sarah McCabe

BANKS are returning to boom-time lending practices, a growing body of evidence suggests - and it may be too late to control them.

Mortgages of up to five times a first time buyer's salary are increasingly the norm as banks return to the mortgage market in a desperate bid for profit. Concern is growing that this multiple could rise even higher as competition for mortgage business grows.

"We have reached that classic point in the housing cycle where people are getting desperate to get onto the housing ladder," said Davy chief economist Conall McCoille.

"And banks are only too willing to lend - the mortgage ads we are seeing all over the place are not just a PR exercise. They want and need to lend.

"People given mortgages close to five times their salary stretched out over 30 or 35- year periods, with only 10pc deposits required, may not be prepared if record low interest rates rise. They may be in for a fairly nasty shock. We certainly don't want mortgages to go above multiples of five times salary."

The UK government, experiencing a similarly overheating housing market, recently brought in stricter lending limits to control what it views as unsustainable mortgages.

When queried, the Central Bank repeated a previous statement by its governor, Patrick Honohan: "We have a toolbox of measures which can be used to cool down credit-fuelled demand. We will not hesitate to use them to prevent bank credit overheating the market".

But some economists believe the regulator is no longer in a position to introduce controls like a minimum deposit requirement, given the pent-up demand for property among first-time buyers who delayed while prices fell.

"They can't just turn around now and tell first-time buyers who have waited for years to buy that they'll need to save another €40,000. I don't know why they have held off," said Ronan Lyons, economist with DAFT .

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