Plans to ease 20pc rule for homebuyers

Proposed changes ‘not set in stone’

THE controversial rule that would require homebuyers to stump up a 20% deposit before being granted a mortgage may be eased, according to the governor of the Central Bank.

Patrick Honohan made the comments at the annual National Management Forum, held by the Money Advice And Budgetary Service, in Portlaoise yesterday.

Last month, the Central Bank announced new mortgage rules stating that applicants must pay a deposit worth 20% of the value of the property. They were due to come into effect from January 1, 2015.

It also announced that banks would be restricted to lending three-and-a-half times a borrower’s gross income.

The Central Bank said the new rules would help avoid another property crash and slow the rate of price rise currently experienced in the market.

However, there was significant public and political backlash against the proposals, with people arguing they would make it incredibly difficult for first time buyers to get on the property ladder.

Speaking yesterday, Mr Honohan hinted that the rules may not be set in stone.

‘What about mortgage insurance which could allow going from that 80% to 90%? [of the loan]

‘There are pluses and minuses but it’s very much in there in our consultation.

‘We want to hear a reaction to this,’ he said.

The news is likely to be welcomed by people struggling to get on the property ladder, espe-

‘We want to hear a

reaction to this’

cially in the Dublin area where homes are scarce and increasingly unaffordable.

Mortgage insurance is a product that banks and building societies take out to protect themselves from any losses incurred when a customer defaults on their mortgage.

It is available in many countries, including the United States, France, Canada, Aus- tralia and the Netherlands. In the case of Ireland, it could allow a bank to lend a homebuyer 90% of the value of the property, with 10% covered by the deposit and further 10% insured by a third party.

However, the borrower must cover the cost of the insurance, rather than the bank.

Mr Honohan told the conference that this type of insurance would be mostly useful for relatively small loans and first-time buyers.

He welcomed feedback on the matter, including practical suggestions on how it could be implemented.

Mr Honohan also said that the Central Bank would do everything possible to protect the new generation of homeowners, and the nation at large, from the risk of a repeat of what happened during the crash.

House prices in the capital have soared over the last two years and a recent study revealed they are now up to 25% above affordability levels.

Dr Kenneth Jordan, of the Department of Transport, said that a homebuyer now needs an income of between €66,000 and €80,000 to buy an average house in Dublin.

IN PUBLIC life, a U-turn is normally a sign of weakness; occasionally, however, it is a welcome indication of common sense. That is certainly the case with Central Bank governor Patrick Honohan’s volte face on mortgage deposits.

The 20% requirement due to come into effect in the new year might well have helped take the heat out of the property market, as intended; but it would also have been grossly unfair on young couples struggling to buy their first home.

In agreeing to revisit the figure, Mr Honohan has shown a refreshing willingness to take the wishes and aspirations of the public at large on board.

Would that others, in Government and the public service, were equally willing to listen to the people and act accordingly.