Monday 16 December 2019

U-turn on 80pc loans: Central Bank Governor signals change

Easing of Central Bank's tough new mortgage rules comes as major relief for first-time buyers

Patrick Honohan
Patrick Honohan

John Drennan

CENTRAL Bank governor Patrick Honohan has signalled a dramatic U-turn on the controversial 20pc mortgage savings demand being made of new borrowers.

Easing of tough new savings requirements will come as massive relief for first-time buyers worried they would never be able to buy their own home.

The Sunday Independent last month revealed the Government was heaping pressure on the Central Bank to relax the regime, due to be introduced in January.

Under those proposals, homebuyers would have to come up with a deposit worth 20pc of the value of the property - €60,000 on a €300,000 house, for example. Another proposal would have outlawed banks and building societies from lending more than three-and-a-half times a borrower's gross income. The diktat was designed to stop a new property bubble and another generation of distressed mortgage holders - but critics said the rules were too stringent and would force first-time buyers out of the market.

However, in a major U-turn, the country's most senior banker yesterday told delegates at a MABS (Money Advice and Budgeting Service) National Management Forum, that a new Irish mortgage insurance scheme could allow house purchasers to avoid the 20pc barrier, though he warned that an insurance scheme would not be trouble free.

"It is not ideal, but it could relieve the problem of a deposit requirement," Mr Honohan said.

Under current schemes, mortgage insurance allows a bank lend 90pc of a house purchase price. Homebuyers put down a 10pc deposit and a further 10pc of the mortgage is insured by a third party, with the cost of that insurance borne by the borrower. Mr Honohan told delegates: "The Central Bank's recent consultation paper pointedly raises the question of whether adequately-insured mortgages should be allowed to exceed the general 80pc rule which has been proposed."

Mr Honohan referred to a similar mortgage model in the US which may provide a blueprint to beat the 20pc mortgage savings demand.

He added: "Mortgage insurance has been used in that country, and others, for almost a century to enable borrowers to obtain finance for housing without actually having to save the 20pc that would otherwise have been insisted upon by the lenders and their regulators."

The Central Bank governor expressed concerns that an excessively-liberal insurance regime could neutralise the Central Bank's attempts to prevent a new house price bubble, though he admitted the initial proposals had been a source of public angst. However, Mr Honohan defended the Central Bank's much criticised original scheme, which he said was aimed at preventing another property bubble and a wave of distressed mortgages. "We will not shirk our responsibility to do what is in our power to deliver on our mandate to protect the new generation establishing households from the risk of a repetition of what happened before."

Mr Honohan also said he "would personally ensure" the Irish public would hear the full truth about the €64bn bail-out. In the wake of the release of the correspondence between ex-ECB president Jean-Claude Trichet and ex-Finance Minister Brian Lenihan, pressure has increased on Mr Trichet or the ECB to testify at the Banking Inquiry. Mr Honohan vowed he would testify at the inquiry, even if Mr Trichet or senior ECB figures refused to do so.

"If there are no other representatives I will come and I will talk," he said. "I saw a lot of discussions. I will recall my position and I will give my recollections of what others said. I will give my best shot at explaining the perception of other people which did not always coincide with what I was working for."

Sunday Independent

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