Sunday 25 March 2018

Central Bank told to change lending rules

Fianna Fail and Labour call for deposit cuts for first-time buyers struggling to get on ladder

Central Bank governor Philip Lane Photo: Collins Photos
Central Bank governor Philip Lane Photo: Collins Photos

The Central Bank is coming under intense political pressure to radically overhaul its restrictive mortgage lending rules, the Sunday Independent can reveal.

Political parties are demanding significant changes to the strict conditions on mortgage deposits which have made buying a house near impossible for ordinary workers.

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First-time buyers are being frozen out of the housing market due to high rents coupled with the massive mortgage down payments they are forced to save due to the Central Bank rules.

Young families hoping to trade-up are also being crippled by the lending conditions which mean they have to save a huge 20pc deposit on any home they hope to buy.

Central Bank governor Philip Lane ordered a review of the rules when he took office last year and called for submissions from interested parties. Mr Lane warned he is as likely to increase the mortgage deposit rates as he is to decrease them depending on the outcome of his review.

However, Fianna Fail is calling for the rate for first-time buyers to be slashed by a third if the house-buyer has a proven track record of paying rent for three years.

The party's submission, which was prepared by Fianna Fail finance spokesman Michael McGrath, also calls for new laws which will force banks to take out insurance against losses arising from borrowers defaulting, or entering into a mortgage arrears resolution process.

The cost would be shared between the borrower and lender - the bank would add an interest rate to the loan to cover the insurance.

"It is our belief that this would open up the option of home ownership to a significant number of people currently shut out of the housing market in a way that does not pose a risk to the financial system," the submission states.

The comprehensive 12-page document, seen by the Sunday Independent, also insists the Central Bank should apply the same rules to people trading up as it applies to first-time buyers.

This would mean a family looking to buy a bigger home would have to save up 10pc on the first €220,000 of the house price and 20pc on the remaining balance.

In this scenario, a couple looking to trade-up to a house costing €400,000 would need a €58,000 deposit rather than an €80,000 down payment under the current rules.

The Fianna Fail document paints a stark picture of the impact the mortgage rules may have on families who cannot move into bigger homes to raise their children.

The party says there are "potential significant social consequences to this phenomenon".

"People may decide not to move to take up employment opportunities which would be beneficial to them and the economy. Many parents also face the challenge of bringing up children in accommodation such as an apartment or a house that is too small for their needs," it adds.

The Labour Party is also calling for the Central Bank to take into consideration the rental history of first-time buyers saving for a deposit.

In Labour's submission, the party's finance spokeswoman, former tanaiste Joan Burton, said she has encountered many families and individuals who have been prevented from buying a home due to the lending rules.

"A significant proportion of these are due to the inability to save a sufficient mortgage deposit to satisfy the existing regulations," Ms Burton said.

She said when a home buyer can demonstrate they can pay monthly rent equal to a mortgage payment, this should be taken into account when they are applying for a loan.

Ms Burton also says many people living in Dublin are paying rent in excess of mortgage payments and this is stopping them getting on the property ladder. She also sets out a 'save to buy' scheme for first-time buyers, which would see the State top up mortgage savings by €1 for every €4 saved.

There would a be a €1,200 annual cap on the State's contribution and the scheme would last a maximum of five years per individual.

Under Labour's proposal, home-buyers could potentially receive a €6,000 State contribution towards their mortgage down payment.

The Department of Finance also made a submission in which it said there is "sound rationale" behind the lending rules and welcomed the review process.

However, the department also asked the Central Bank to consider the current condition of the housing market and "reflect the realities of that and in particular focus on the challenges facing first-time buyers".

Finance Minister Michael Noonan's officials also made a number of proposals based on market evidence, according to a spokesman.

The Construction Industry Federation (CIF) has written to the Central Bank suggesting the average couple - a garda, nurse, teacher or civil servants - should be given waivers to allow them get loans.

Sunday Independent

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