Have YOUR say on mortgage lending rules
Fair, prudent or just plain daft? Now you can give the Central Bank a pie ce of your mind in its new online survey
Should our mortgage lending rules be changed to help young people get on the property ladder? Or will changing them just lead to another hike in property prices that will go into builders’ pockets and gobble up any benefit for borrowers? These are questions the Central Bank has put out there – inviting anyone to make an input in a major review of its controversial and hugely significant mortgage rules.
These are not financial rules only of interest to some obscure number-crunchers; they dictate who does and doesn’t get to own a home in Ireland, which is the most fundamental issue for a generation of younger people.
If you can’t buy, you face an uncertain financial future. A tenant paying average rent in Dublin of €1,745 would see that monthly bill rise inexorably to €3,095 a month over 35 years (based on 1.6% inflation).
By the end of that period, they’ll have coughed up €990,332 in rent, even if rises are restricted to current inflation levels.
You could buy a house for less than half of that sum – including interest, property tax and insurance etc. After paying off the mortgage in 25 years, you’ll own a house that will probably be worth over half a million euros or more.
The implications of not owning a home are more than financial.
Throughout their lives, renters will be regarded by some homeowners as second-class citizens (a peculiarly Irish phenomenon). They can’t re-decorate, or improve their homes and gardens… which will have driven many to distraction during Covid-19 lockdowns.
And when they retire, they’ll still have to pay high rent as a pensioner, or even be asked to move on.
There are also massive political implications with Sinn Féin gaining traction on the housing issue with people too young to remember its murky past.
The Central Bank is now seeking your input in a review of its controversial rules on mortgages that currently limit borrowing to 3.5 x income, while non first-time buyers must have a 20% deposit.
While these rules have kept a lid on prices they have also stopped many people from buying homes they could easily afford.
Our case study is just one example of many thousands of people paying far more in rent than they would for a mortgage – yet they are deemed incapable of repaying a home loan.
More than one-in-10 renters are forking out more than half their income to landlords, with the average paying 36%. Yet according to the Central Bank rules these people can’t afford mortgages at this level – and so in theory can’t pay even more money for rent! Yet they clearly are.
Daft’s latest rent report showed that in only two of the most expensive areas in the country – Dublin 4 and 6 – was repaying a mortgage on a three-bedroom home more expensive than paying rent.
Meanwhile, thousands of borrowers are getting prized exemptions from the rules for obscure reasons on the say-so of banks. Banks are thus given power over borrowers that has left many customers fearful of offending them lest they or their relatives are denied a chance to buy a home.
All of this is unfair. So what should we do? It’s true that any changes are fraught with risk.
Changing the rules as called for and, as outlined below, could push up property prices, although a slight tweaking may not have that much impact. But most measures to help first-time buyers are attacked as likely to stoke up property prices. And yet we can’t do nothing.
Perhaps we need to accept
slightly higher property prices when we’ve added so much to building costs with new rules on space, insulation, energy boilers, disabled access etc.
Homes outside of our cities now cost way less to buy than to build. And even in Dublin, construction costs of €220k – plus €120k site costs – make it hardly worthwhile to put up houses outside of wellto-do areas.
A rise in prices in cheaper counties could also trigger an increase
in building, which in turn would help to release the pressure valve by bringing more supply onstream.
Whether you agree with all this or not, now is the chance to have your say. The Central Bank of Ireland has just announced the first ‘comprehensive review of the policy framework’ since its mortgage measures were introduced in 2015. And it is inviting members of the public to give their views.
‘Engagement with the public will be a core element,’ the Central Bank said. ‘While the annual assessment of the measures will take place as usual later in the year, this broader review will focus on the overall policy framework, strategy and toolkit for the mortgage measures. To allow as many people as possible to input we have launched a new online survey.’
People are asked to share their views and experiences on the functioning of mortgage measures to date, their views on what a sustainable mortgage market looks like, and what they think the Central
Bank’s review should focus on. This will inform the framework review that will run through 2021 and 2022.
The survey can be found at centralbank.ie/survey and will close at 5pm on July 30, 2021.