‘Forget borrowing more, wait for new houses to be built’
Central Bank chief ’s tough message for desperate homebuyers
THE Central Bank has dashed the hopes of potential homebuyers by refusing to relax mortgage lending rules – instead insisting that the answer to the housing crisis is greater supply.
The rules dictating the amount of money people can borrow for a home and the size of deposits needed are to remain unchanged, the watchdog said after a review.
Central Bank Governor Philip Lane acknowledged that the high level of house prices and rents were posing serious affordability issues, but he said more house building – not borrowing – was the answer.
“A fully functioning and sustainable housing market is not achieved by tolerating imprudent lending standards by banks or excessive borrowing by households,” he said.
Brokers Ireland was among those who criticised the restrictions, saying that they would continue to force people into expensive rentals.
THE rules dictating the amount of money people can borrow for a home and the size of deposits needed are to remain unchanged, the Central Bank said after a review.
This is despite pressure from estate agents and mortgage brokers to relax the lending limits.
Central Bank Governor Philip Lane acknowledged high house prices and rents were posing serious affordability issues, but more house building was the answer.
“A fully functioning and sustainable housing market is not achieved by tolerating imprudent lending standards by banks or excessive borrowing by households,” he said.
The rules set out how much customers can borrow for a home loan, and are in place to stop banks over-lending and consumers over-borrowing.
Brokers Ireland was among those who criticised the restrictions, which are particularly tough on those hoping to buy in city areas. It said the announcement was “very disappointing and 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”.
Rachel McGovern of the organisation said in some areas renting is almost double the price of servicing a mortgage.
Ms McGovern said her organisation believes the Loan-to-Income (LTI) threshold should be 4.5 times income, similar to the UK. Second-time buyers should only need a 10pc deposit, she said.
However, a statement from the Central Bank said the rules were achieving financial stability and protecting consumers.
Introduced in 2015, the rules have been credited with slowing down the pace of house price growth.
The analysis by the Central Bank found that house price inflation should continue to ease due to increases in house building and more sales of existing properties.
Mr Lane said: “Our review shows that, while the pace of growth in the new mortgage lending is strong, there has been little change in average LTVs (loan to value) and LTIs (loan to income) and no sign of a generalised deterioration in lending standards. On the basis of these findings, no change is required to the current framework.”
The Central Bank introduced the mortgage lending restrictions for homebuyers in 2015 in order to avoid a repeat of the property crash.
They limit most customers to borrowing no more than three and a half times their income. Some exceptions are allowed, with 20pc of the value of new mortgages issued by each bank to those purchasing for the first time permitted above that limit.
But in the case of second-time buyers, only 10pc can go over that threshold.
There are also restrictions on the proportion of loans that can breach specified loan-tovalue ratios.
First-time buyers also need a deposit of at least 10pc, with 20pc required for other buyers.
Again some exemptions are allowed.
The Central Bank’s review of the impact of the lending limits found that they do not appear to be the most important factor driving house price developments. Increases in housing supply and turnover should contribute to further moderation in price growth, it stated.
“The mortgage measures support sustainable mortgage lending in the wider housing market, thereby contributing to financial stability and protecting borrowers from excessive debt,” Central Bank Governor Mr Lane said in a statement.