Help-to-Buy is behind surging house prices - Central Bank

Central Bank Governor Philip Lane told the Oireachtas Finance Committee: "Prices are going up to an extent that only people on high incomes can afford house prices."

His comments came after housing reports from Daft.ie and MyHome.ie showed that house prices are now rising at a rapid rate.

Prices have surged by 10pc so far this year on an annual basis, according to MyHome.ie.

Peak

The average price is now €230,000. Although this is below the peak level reached during the boom, it is almost 10pc higher than last year and more than €65,000 higher than its lowest point, according to Daft.ie.

First-time buyers are now getting approved for mortgages of an average of €206,500, up €25,000 since last year, MyHome.ie said.

Prof Lane said the Help-to-Buy scheme, which many economists feel is creating too much demand for housing when supply is limited, was pushing up prices.

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"I don't think there can be any doubt, if you have additional capacity to enter the system there is going to be impact effect, even though it only applies to new builds, it will of course drive up prices."

He added that the scheme could have a short-term effect, and that the long-term effect of more building could "self-correct" the market.

But he questioned whether grants of up to €20,000 to first-time buyers for buying new builds was the best way to fix the housing crisis.

"If you're offering €20,000 rebate, is that the best use of that funding? But that's for the Oireachtas to [decide]."

Prof Lane said it was important to remember that Central Bank lending rules meant buyers could not get mortgage approval for more than 3.5 times their income level.

This would ensure consumers would not over-borrow to buy homes.

Prof Lane was reminded by Sinn Féin's Pearse Doherty and Fine Gael's Kieran O'Donnell that he has in the past promised to act if there were strong signals of a new housing bubble with prices spiralling out of control.

The governor said he was committed to reviewing the mortgage and housing markets once a year in November.

To do so more than this would destabilise the market.

Money

"Rising prices over a relatively short amount of months are not enough.

"More frequently than an annual basis would be too frequent."

He said the Central Bank has other options that can force banks to put aside more money if they are lending too liberally.

Credit rules are not about solving the affordability problem in this country.

Prof Lane's comments on Help-to-Buy came as it emerged that the scheme is set to cost more than the €50m set aside for it.

So far, 4,700 applications for the Help-to-Buy scheme have been approved, with 1,006 of these applications proceeding to the payment stage.

Some 534 claims, totalling €8.2m, have been approved at this stage, with an average pay out of €15,350 per claim.