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Dan White: We must stick to this sensible 20pc house deposit rule

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A “NATIONAL obsession” with buying property was one of the main factors that contributed to the economic crisis, the Oireachtas Banking Inquiry was told.

A “NATIONAL obsession” with buying property was one of the main factors that contributed to the economic crisis, the Oireachtas Banking Inquiry was told.

Central Bank governor Patrick Honohan.

Central Bank governor Patrick Honohan.

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A “NATIONAL obsession” with buying property was one of the main factors that contributed to the economic crisis, the Oireachtas Banking Inquiry was told.

With house prices showing clear signs of levelling off, Central Bank governor Patrick Honohan must resist pressure from politicians and the property lobby to relax the tough new mortgage lending rules.

Asking prices for houses on sale in Dublin fell by 0.7pc in the final three months of 2015, according to property website Daft.ie.

This is the second major indication that, after rising by 24pc in the 12 months to October, Dublin house prices are coming off the boil.

The latest figures from the CSO show that average Dublin house prices fell by 0.1pc in November. So what has changed in the housing market over the past three months?

Most of the factors that were driving house prices upwards during the first nine months of 2014 remain in place.

Step forward Central Bank governor Patrick Honohan.

In October, worried that house prices were rising dangerously fast, the Central Bank moved to impose tough new mortgage rules on the banks.

Under the new rules, the banks will have to insist on a 20pc deposit from most homebuyers. In addition, most loans will be capped at 3.5 times the borrower's gross salary.

force

And guess what: the new mortgage lending rules, which have yet to come into force, seem to be working.

The prospect of having to save a hefty deposit means that potential purchasers have reduced the prices they are prepared to pay for houses and apartments. This is precisely what the new mortgage lending rules were designed to do.

One would have thought that Professor Honohan would have been universally praised for taking decisive action to stop house prices getting out of control.

But no, proving that no good deed goes unpunished, the Central Bank boss has been lambasted by the banks, the property lobby and, most shamefully of all, some politicians for doing the right thing.

In the three months since the new rules were first announced, the usual suspects have whipped up hysteria, alleging that they would somehow prevent first-time buyers getting on the property ladder.

Nonsense. As is already beginning to happen, the new rules will lower the prices buyers are willing to pay and, as a result, mean that they are at less risk of falling into negative equity.

Call me old-fashioned but that seems perfectly sensible.

So will Professor Honohan bow to the intense pressure to change the mortgage lending rules or will he stick to his guns?

Well, the Central Bank governor is completely independent of the Government. Ministers can threaten, instruct or advise to their hearts' content but the governor can ignore them.

denying

Which is what I suspect Professor Honohan will do. Remember, he has form in this area. Cast your mind back to November 2010 when Government ministers were still denying the need for a bailout even as representatives of the Troika were already in Dublin.

With the public mood close to panic, it was Professor Honohan who saved the day by going on radio to announce that Ireland was negotiating a bailout.

Don't be surprised if Professor Honohan adopts a similarly robust approach this time around. Potential homebuyers should hope that he does.


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