Housing crisis solution? Build more houses...

Central Bank comes up with a no-brainer

WE need to build more houses to stop prices from shooting up, the Central Bank declared yesterday, while indicating that there will be no let-up in its tight mortgage controls.

It warned that while the restrictions frustrate potential home buyers, they help to prevent a new property bubble.

Governor Philip Lane said there were ‘serious affordability concerns’, especially in urban areas, and that the only solution is what community leaders, market experts and politicians have been clamouring for – a sustained and substantial expansion in housing supply.

Launching the Central Bank’s latest property review, he said ‘tolerating imprudent lending standards by banks or excessive borrowing by households’ would damage the market.

The rigid rules are working, and ‘on the basis of these findings, no change is required’, he said. The bank introduced the lending rules in February 2015. They restrict most borrowers to a mortgage of 3.5 times their income and 80% of the price of the property. First-time buyers can borrow up to 90%.

Before the restrictions were introduced, house prices were rising by as much as 20% a year, but they slowed dramatically to less than half that rate by the end of 2015. Prices are currently going up by just over 8% a year, according to the latest official figures.

The bank’s approach was described as ‘steady as she goes’ by David Hall, head of the Irish Mortgage Holders’ Organisation, which campaigns for struggling homeowners. He said: ‘There’s no brain surgery in this. People don’t want to get back into the difficulty of unsustainable debt.

‘There is still a concern about people borrowing the deposit they need from third parties – that’s a risk. But ultimately they are competing with cash-buyers and cash is king at the moment, so a cautious welcome.’

But Rachel McGovern, financial services director at Brokers Ireland, described the announcement as ‘very disappointing’.

She said it will ‘continue to force people into the rental market, where there is a yawning gap between repaying a mortgage on a home and paying rent on a similar home’. In some places renting is ‘almost double the price of servicing a mortgage’, she said. While she acknowledged the lack of supply, she added: ‘The gap between repaying a mortgage and paying rent for a similar property is stark, with it being substantially more expensive to rent in almost every area of the country, incredibly even allowing for a 2% increase in interest rates.’

‘Almost double the price’