Monday 18 December 2017

New rules on 'high-risk' mortgages in pipeline

Laura Noonan and Thomas Molloy

THE Central Bank is considering new proposals that could prevent banks from offering variable or tracker mortgages and restrict institutions from taking on too much "high-risk property lending".

The potential new rules, described as being at an "early stage of development", are revealed in a wide-ranging document published yesterday on Ireland's implementation of its bailout programme.

The European Commission's review also reveals that:

  • Brussels officials have halved their forecasts for Ireland's 2012 economic growth amid fears of a eurozone recession.
  • The Government has taken in €2.3bn from the bank guarantee scheme since Ireland was bailed out last December.
  • EC officials urged the Government to "thoroughly restructure" the ailing credit union sector at October's review mission.
  • The authorities warned the Central Bank to ensure next year's stress tests "avoid any significant changes" that "could be perceived as lowering the bar".
  • Private losses from Ireland's banking collapse now outstrip the cost to the public purse by more than €2bn.

The prospect of eliminating variable and tracker mortgages is contained in a lengthy section on efforts to "strengthen supervision" of Ireland's banks.

The commission notes that the Central Bank is preparing a report that would explore various new "policy tools" such as capping how much of a property's value a bank can loan out.

The report would also look at "potentially fixing all interest rates for certain products such as mortgages" as well as imposing restriction on the amount of "high-risk property lending" individual banks could do, the EC said.

A "discussion document" is expected to be presented "before the end of the year" so "conclusions and recommendations" can be reached with the EC and other bailout partners by the end of March.

Ireland has a far higher proportion of variable mortgages than most European countries. The effect is to leave borrowers with more volatile repayments since they can rise and fall in line with interest rates.

Sources stressed that any measures were at a "very early stage" and no decisions had been taken.

It is understood proposals may centre around promoting longer term fixed rate loans, like the 10 and 15-year fixed rates common in Europe, rather than forcing everyone on to fixed rates.

Bankers said they've had "very little" engagement with the Central Bank on the topic so far, adding that it would be "difficult" to force all borrowers to take out fixed rate mortgages.

A spokesman for the Central Bank declined to comment on the prospect of restrictions on banks' lending practices.

The EC document broadly praised the Central Bank for the significant steps it has already taken to improve financial supervision and noted that banks had "agreed to about 70pc" of the new disclosures the Central Bank wants them to make in their published filings.

On the costs of the rescuing, the EC lamented the fact that the bailouts had not had "broad-based public support" and stressed that the private sector had borne a bigger cost than the taxpayer.

The EC's figures show private investors have coughed up some €65bn, including €50bn of shareholder value wiped out, and €15bn through new investment and losses on junior bonds.

The public has put in €62.8bn but got back €2.3bn from the government guarantee scheme since last December, plus another €700m in dividends and other income, with more to come through the "eventual sale" of the stakes.

Beyond the banks, the EC said the Government was urged to "thoroughly restructure" the credit union sector "even at the cost of some additional public funds".

Some €250m is to be injected into a "resolution fund" for the sector by the end of 2011, with a second tranche of cash being made available "if needed" in 2012.

The authorities requested "more time" to complete new legislation for credit union resolution, and were given until the end of June "to permit broader consultation with stakeholders".

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