Saturday 18 January 2020

Central Bank governor resists pressure to alter mortgage lending limits

Strict: Central Bank Governor Gabriel Makhlouf has refused to bow to pressure to ease the restrictions. Photo: Vivek Prakash/Bloomberg
Strict: Central Bank Governor Gabriel Makhlouf has refused to bow to pressure to ease the restrictions. Photo: Vivek Prakash/Bloomberg
Charlie Weston

Charlie Weston

The Central Bank is resisting pressure from the Taoiseach and the head of the country's biggest lender to alter strict mortgage limits.

The lending limits have been blamed for a slowdown in home building, and for trapping people in rental accommodation.

Taoiseach Leo Varadkar said the rules were "very tough" on young couples paying sky-high rents while trying to save for a deposit.

AIB boss Colin Hunt is also among those who have called for the rules to be relaxed.

Please log in or register with for free access to this article.

Log In

But new governor Gabriel Makhlouf has refused to bow to pressure to ease the restrictions.

The Central Bank has just issued a review it carried out on the lending limits, but has decided they do not need to be adjusted in any way.

The rules mean first-time buyers need a deposit of at least 10pc of the property's value, with second-time buyers needing a 20pc deposit. Buyers can only borrow 3.5 times their income, unless they get one of a small number of exemptions.

House prices have risen so much that these limits are pricing thousands out of the market, it is argued.

The regulator admitted conditions in the housing market remain challenging.

But it said property prices would be even higher without the limits.

"The mortgage measures have been effective in strengthening borrower and lender resilience and in limiting the potential for an adverse credit-house price spiral to emerge," the bank said.

The regulators have estimated prices would be between 15pc and 25pc higher than at present without the rules.

Buyers would also be more indebted without the limits, Mr Makhlouf said.

The Central Bank also denied claims the rules are constraining house building.

Supply is the issue in the property market, not the lending rules, it said.

It said that the lending limits were not put in place to target house prices, but to ensure that people do not over-borrow, and banks do not over-lend.

But it admitted the lending limits have become more binding, as more buyers are being forced to borrow close to what is permitted under the rules.

Brokers Ireland said it was disappointing that there has been no movement in what it said are very strict income criteria of 3.5 times gross income.

Director of financial services Rachel McGovern said the current limit is too strict and is keeping aspiring buyers longer in the rental market, increasing rent inflation and pushing first-time buyers in particular further into the suburbs to acquire a home.

"The gap between repaying a mortgage and paying rent for a similar property is severe, it is substantially more expensive to rent in almost every area of the country, even allowing for a 2pc increase in interest rates, as most recently illustrated in the Rental Price Report for Q3 2019.

"Interest rate increases are not remotely on the horizon," she said.

While Brokers Ireland supports the idea of restrictions on loan amounts, she said State policy towards the issue is "both overly zealous and piecemeal".

She claimed it raises the question of whether or not consumers' interests are being sufficiently catered for in the mortgage rules.

Ms McGovern said Brokers Ireland believes the loan-to-income threshold should be 4.5 times income.

And the loan-to-value threshold should be 90pc for second and subsequent buyers, similar to that for first-time buyers.

Irish Independent

Also in Business