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Monday 21 January 2019

Soaring house prices not my fault, says Central Bank boss after relaxing rules

Central Bank Governor Philip Lane Picture: Jason Clarke
Central Bank Governor Philip Lane Picture: Jason Clarke

Colm Kelpie

Governor Philip Lane has suggested that rising house prices are not the fault of the Central Bank - insisting its mortgage rules are continuing to act as a brake on the market.

It follows a near 12pc hike in house prices in a year.

He blamed rising incomes, high rents, and cheap borrowing for the surge in prices, saying building more houses would ultimately ease the pressure.

Professor Lane also noted the large number of cash buyers, over which the Bank has no control.

Since last November, first-time buyers are now able to borrow any amount with a deposit of 10pc.

Prior to that new borrowers could have been approved for a mortgage with a deposit of 10pc for borrowings up to €220,000.

But Prof Lane said the jump in mortgage volumes is off a low base, and that the measures will keep house prices in check.

"The operation of these [mortgage rule] mechanisms means that the combination of the LTI [loan-to-income] ceiling and the ladder of differentiated LTV [loan-to-value] ceilings provides some in-built brakes in housing price dynamics," Prof Lane said.

House prices increased 11.6pc in the year to June.

Last year the Central Bank made a big change to its mortgage lending rules, in a move that was expected to make it easier for new buyers to get a mortgage.

The number of mortgage approvals rose by 17pc year-on-year in July, and by 23.3pc in value terms.


"To the extent that the revision is contributing to an increase in aggregate mortgage credit volumes, this should be interpreted in the context of the subdued level of lending in recent years," Prof Lane said.

The Governor also warned that the Government may need to consider tax increases and running a large budget surplus in future years to avoid the economy overheating.

Just days after the State's budgetary watchdog warned overheating was a real risk, Prof Lane said the Government will have to balance the need to ramp up public investment, with ensuring the economy can remain on a sustainable footing.

"Measures that would lead to a slowdown in the growth of consumption and investment would be the natural levers," she said.

"That could be general increases in taxes or selective tax rates that focus in on consumption and investment."

The Fiscal Advisory Council warned that there was a "realistic possibility" that the economy will start to overheat in the coming years if the strong growth rates continue.

Meanwhile, low and middle income earners will receive a tax boost in Budget 2018 which will be delivered through tax band changes rather than rate cuts, Finance Minister Paschal Donohoe confirmed yesterday.

He also revealed that the Universal Social Charge (USC) will be amalgamated with PRSI to deliver enhanced social services.

Irish Independent

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