Wednesday 18 September 2019

Credit unions want mortgage rules to reflect equity

Kevin Johnson of CUDA wants the rules changed
Kevin Johnson of CUDA wants the rules changed

Sarah McCabe

An association of credit unions has called for an overhaul of the Central Bank's mortgage lending rules to reflect whether or not borrowers have equity in a home.

The regulator is inviting submissions from the public on the impact of the rules, which were introduced last February.

They restrict the amount that people trading up can borrow to 20pc of a property's price, while first-time buyers can borrow up to 90pc on properties valued at less than €220,000.

In both cases, buyers cannot borrow more than 3.5 times their income.

A submission by the Credit Union Development Association (CUDA), whose members include some of the largest credit unions in the country, calls for new buyer definitions to replace 'first-time buyer' and 'trade-upper' - a 'no equity' category.

When the phrases were first coined, it was assumed that first-time buyers did not have equity from a previous home, while trade-uppers always did, CUDA told the Sunday Independent.

"Unfortunately, many families in their 30s, 40s and 50s are now in the trading-up category - looking to trade up to a bigger or family-friendly house" said chief executive Kevin Johnson.

"However, having bought just before the downturn, they don't have any equity to carry from their current home. CUDA is advocating that buyers should instead be categorised by 'equity' and 'no equity'."

Johnson's organisation also wants a relaxation of the limit on how much people can borrow relative to their income.

It argues that this is more of an obstacle to home ownership than minimum-deposit rules.

"We know the demand is there, but many people cannot meet the new rules because of the loan-to-income rule," said Johnson.

"While deposits are spoken of far more in the media, we believe that a small modification to the income rule would have a bigger impact without causing an undue spike so as to avoid any significant pressure on house prices."

Though it is inviting submissions from the public and will review the mortgage rules this year, the Central Bank has already indicated that they are unlikely to be significantly altered.

Deputy governor Sharon Donnery said recently that while the rules may in future be amended in response to cyclical conditions, they have been introduced as permanent features of the Irish mortgage market.

The evidence threshold for any change would need to be high, she added.

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