Thursday 24 May 2018

Central Bank chief warns of risks of house prices falling

Government urged to build budget surplus €459m has been paid out in tracker scandal

Stark warning from Central Bank governor Philip Lane. Photo: Stephen Collins/Collins Photos
Stark warning from Central Bank governor Philip Lane. Photo: Stephen Collins/Collins Photos
John Mulligan

John Mulligan

There is a "material risk" that house prices will fall within the next two to three years, the governor of the Central Bank, Philip Lane, has warned.

He predicted that a number of factors, including increasing housing supply, will put downward pressure on prices.

He acknowledged that there is currently an "affordability crisis" in the market - the Central Statistics Office said this week that national home prices soared by 12.7pc in the year to March. Mr Lane said property experts expect prices to rise by about 15pc over the next three years.

But he also told the Oireachtas Finance Committee that he is "troubled" by expectations in some quarters that house prices will continue to rise unabated.

"I do think there's a material risk of a reverse in house prices," he told the committee.

"We should all be less concerned about trying to forecast and more concerned about trying to manage the risks.

"As more and more houses get built, that will put downward pressure on house prices in the coming years," he added.

"This is why we have our mortgage rules - in order to avoid the risk of excessive debt being taken on at exactly the wrong time," said the Central Bank boss.

He said the rules - which limit the amount of money banks can lend to house buyers - ensure that "only those who are financially prepared for it, can take on a mortgage".

"Our rules are beginning to bite more severely," he told the committee.

Mr Lane said that external factors such as Brexit and international trade issues could also weigh on house prices within the next few years.

"There are multiple reasons why this kind of positive momentum now may go into reverse," he cautioned. "I'm not expecting it, I'm just saying it's a material risk. It's something you should plan for."

He said that broader European Central Bank policy means monetary interest rates are unlikely to "move dramatically" in the years to come, but that banks price mortgages based on a five-to-eight year horizon, and "there's a risk they could move".

In a quarterly update to the committee, Mr Lane also said that 3,400 new tracker mortgage cases have been identified since the end of December, bringing the total to 37,100 at the end of March.

There are also about 1,500 unverified cases still being assessed to see if they also require redress.

By the end of March, 88pc of borrowers hit by the controversy had agreed redress with banks, and a total of €459m had been paid out in compensation.

That's €162m more than had been paid out by the end of December.

The "vast majority" of the remaining cases will be dealt with by the end of June, according to Mr Lane.

The Central Bank's director general of financial conduct, Derville Rowland, confirmed that enforcement proceedings are currently underway by the Central Bank against six lenders in relation to the tracker scandal.

"We are including all possible outcomes, including potential individual culpability in these investigations," said Mr Lane.

The Central Bank chief also warned that the Government must look to build a budget surplus, rather than simply balancing the books.

"I don't think it's an issue for now, but in the next year or two it may be the case that we have to go to a situation where for the stability of the economy, running a significant surplus may be important," he said.

"It's all about balancing public spending with raising the revenue to match that."

Irish Independent

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