Monday 19 February 2018

Mortgage crisis: IMF demands mortgage cap overhaul to ease rules

Reform would take account of borrowers’ existing debts

Joan Burton: wants tracker restoration for borrowers who were wronged by lenders. Photo: Frank McGrath
Joan Burton: wants tracker restoration for borrowers who were wronged by lenders. Photo: Frank McGrath
Gavin McLoughlin

Gavin McLoughlin

The IMF has called for an overhaul of the Central Bank's mortgage caps, raising the prospect of more lenient borrowing rules for some buyers.

The overhaul would involve a new system, which would take a fuller account of borrowers' ability to repay loans by measuring their levels of debt.

Under the current rules, there is a limit to what people can borrow, which is determined by their income.

But under the IMF system, debt would be factored in, so that those with lower levels of debt would be able to borrow more than those with higher levels.

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That may provide room for the Central Bank to introduce less stringent ceilings for debt-free people than those that are currently in place.

The bank is undertaking a review of the caps and plans to do so on an annual basis in future. It has previously said the so-called debt-to-income limit "could be a more appropriate limit to put in place, given that it takes all of a borrower's debts into account".

However, introducing such a system is dependent on the introduction of the Central Credit Register (CCR) - a centralised register of people's borrowings - which is unlikely to come into place until next year at the earliest.

A Central Bank spokeswoman said that without the CCR "it would be premature to attempt to establish realistically enforceable regulations on total debt.

"In the meantime, lenders must nevertheless seek to inform themselves about total borrower indebtedness," she added.

The spokeswoman would not comment on whether the new system would make the rules more lenient for some people than they currently are.

The IMF said that once the CCR becomes operational, the new system should be introduced.

In a post-bailout report on Ireland, it said introducing the caps "appears to have mitigated pressures in the residential property market by curbing expectations of further price appreciation.

"These measures should be maintained as a permanent feature of the mortgage market to safeguard the resilience of banks and households against shocks."

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Central Bank deputy governor Sharon Donnery said last month in an interview with the 'Sunday Independent' that the bank's current expectation was that the mortgage caps would be permanent.

"The view that we are taking is that really these have to become structural, permanent and we are looking at the moment from a medium- to long-term perspective, as opposed to a very short-term one," Ms Donnery said.

"We are going to look at the impact of the measures on borrowers. We are going to look at the impact of the measures on banks and their lending behaviour.

"We are going to look at the allowances... we are going to look across the whole spectrum."

She warned that there were circumstances in which the caps could be tightened if the bank felt the market was overheating or there were unsustainable house price increases.

Meanwhile, former Tánaiste Joan Burton has called for action from the Financial Services Ombudsman (FSO) to make sure every mortgage borrower who wrongly had a tracker removed has it restored.

She was reacting to a report last week in the Irish Independent, which revealed that some borrowers who had wrongly lost a tracker were offered refunds and compensation, but were not put back on a tracker rate.

Ms Burton said this "highlights the need for the authorities to take a harder line with financial institutions.

"Banks have cheated thousands of customers out of their tracker mortgages and their refusal to restore them is simply not good enough.

"They may be paying some level of compensation to those people who were wrongly deprived of the tracker mortgage, but they need to go much further.

"There may be some instances where the wronged borrowers have moved on and where they are satisfied with their new arrangement, but any customer who has asked to be put back on a tracker mortgage, must be facilitated. I believe it is incumbent on the Financial Service Ombudsman to make sure that this happens.

"In addition, the FSO must clarify if there are outstanding cases where banks have failed to comply with his direction to restore tracker mortgages."

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Irish Independent

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