Nine months on have the new Central Bank rules been good or bad for the market?

Nine months on have the new Central Bank rules been good or bad for the market?

It has been nine months since the new Central Bank lending rules have come into force but in recent weeks there have been calls for them to be removed.

Critics of the mortgage lending rules, introduced last February, say that the housing market is being stifled by the requirement of a 10% deposit for first-time buyers up to €220,000 and, in particular, the necessity for a 20% deposit on the total amount of a property for non-first-time buyers.

Home buyers can now also only borrow 3.5 times their income, leading many househunters unable to find appropriate accommodation particularly in urban areas where prices are higher.

Some members of the building trade have also bemoaned the fact they cannot afford to build homes and sell them for prices that most people can now afford.

Despite the various criticisms, it appears the new rules are here to stay though with Central Bank deputy governor Stefan Gerlach saying this week that they were essential to protecting the bank system in Ireland.

“The Central Bank of Ireland has a financial stability mandate and introduced macro-prudential policy measures in January of this year to enhance the resilience of the financial system and to reduce the risk of bank credit and house price spirals from developing.

“The very limited evidence we have so far indicates that the measures are functioning as intended.”

Mr Gerlach said one of the major problems with the house market was in relation to supply constraints and said “macro-prudential policy cannot solve these problems and they certainly cannot be resolved by risky lending.”

Speaking in London on Tuesday night, outgoing governor of the Central Bank Patrick Honohan said the rules were important in helping to avoid another property bubble.

“I don’t know where Dublin house prices will be in five years but I know there won’t be another bubble because we have the tools to prevent it,” he told The Irish Times.

What are your opinion on the rules nine months on?

  • Have they affected you in terms of buying a home?
  • Will they help prevent future bubbles emerging?
  • Do the pros outweight the cons or vice versa?

Have your say below…

There are 11 comments for this article
  1. Tom Hughes at 7:28 pm

    The over priced houses in Dublin are due to investors , not the Joe soaps . Investor can walk away leaving banks holding the can not to mention the tax breaks they get on the investment houses . Investors should pay extra stamp duty on investment houses as they did this in 2001 which caused, the housing market to stall. Then the government reversed the higher stamp duty on investors in 2002 then the house prices soared .

    • Pedantic Panda at 9:47 am

      Don’t understand how you say that investors can walk away? They are equally liable for paying back their lendings as owner-occupiers are, as far as I am aware. Has there been a change here?

  2. Geraldine at 6:34 pm

    The CB measures were necessary to stop us from stupidly making old mistakes again. It may seem harsh but It’s basic economics….if you cannot afford it then don’t buy it. We need to remember that what caused the crash was the massive level of private debt….people with very average incomes running up massive amounts of debt and the corrupt banks who were only too willing to hand out the money at a steep price. If the average Joe Soap is earning an average income then maybe he should not be buying a 500k property!! And if he cannot find a decent property below that price (which is not the case in Ireland) then that simply means that properties are overpriced.

  3. Rosaleen Butler at 6:31 pm

    These rules will put us back to the days of the tenements, when only the very privileged could own a house. Many people paying high rents could instead pay a mortgage and leave the rented homes for those less well off. But then what do banks care about people, nothing. Keep the working class in their place. I am lucky enough and old enough to own my home outright but I could never have gotten a house under rules like these. In our day young couples could get a step on the property ladder, today’s young couples deserve the same. Remember it was not the mortgage holders who caused the bank collapse but the pure greed of the bankers.

    • Pedantic Panda at 9:43 am

      Not entirely true – the banks made the money available, yes, and in many cases they made too much money available but there were many home-buyers who decided, because that extra money was available, that they would bid an extra €10K or €20k or €30k on the house that they liked. Next time a house in the area came up for sale, it would start at that elevated price and the cycle continued. The banks share part of the blame but the buyers do too. I remember that we were offered 40-50% more than we needed at the time which would be an insane amount of debt to be in now – thankfully we didn’t let that offered money go to our heads and kept to our budget. We should not have been offered that much but it wouldn’t have been the bank’s fault if we accepted it!

  4. Eamon Brennan at 6:14 pm

    If the CB’s measures were intended to dampen house-price inflation they have worked; but in so doing they have restricted the ability of the ‘average Joe Soap’ to buy a house in the €300,000 – €500,000 range. This is the range that covers most mid-priced Dublin houses so the capital city has been badly effected. Soon, the Dublin housing market may go into reverse. In the past 7 years the pendulum of CB regulation has swung from practically zero to the current requirements that are choking-off a large section of the housing market. As builders will not build if they cannot see a clear and significant profit -why should they- the current situation is likely to restrict the supply of new houses in Dublin and exacerbate the city’s homeless crisis.

    • Pedantic Panda at 10:06 am

      “As builders will not build if they cannot see a clear and significant profit -why should they” … would it not be reasonable to assume that builders might make only a reasonable profit rather than a significant one? It’s like when Siucra closed down their sugar plant here – it was profitable and providing jobs but they shut it down because they felt it wasn’t making enough money. I’m not saying that builders should operate at a loss mind you but builders in other countries (and indeed other counties within Ireland) seem to able to operate successfully in environments where property prices are not at Dublin’s levels!

  5. Stephen at 4:44 pm

    The Central Bank measures were necessary in order to curtail any potential hyper inflation in the housing market. For once in our life let us learn from our historical mistakes.

  6. Pedantic Panda at 4:00 pm

    “Home buyers can now also only borrow 3.5 times their income, leading many househunters unable to find appropriate accommodation particularly in urban areas where prices are higher.”

    Translate: “Some people have lofty aspirations of where they want to live and these rules scupper that but, in contrast, for those truly unable to afford anything appropriate anywhere in urban areas, we will once again witness growth in the commuter belt where quality of life from Mon-Fri decreases and traffic for everyone increases.”

    “Some members of the building trade have also bemoaned the fact they cannot afford to build homes and sell them for prices that most people can now afford.”

    Translate: “The recession has long been over for much of the building trade and labour prices within it are over-inflated compared to what the normal Joe Soap is earning and can buy a home with”

    “Despite the various criticisms, it appears the new rules are here to stay though with Central Bank deputy governor Stefan Gerlach saying this week that they were essential to protecting the bank system in Ireland.”

    Translate: “It appears the new rules are here to stay though with Central Bank deputy governor Stefan Gerlach saying this week that they were essential to protecting …

    (insertion #1) …. the Irish public …

    from ….

    (insertion #2) … the inappropriate lending levels of the past and blind greed of ….

    … the bank system in Ireland.”

    In many ways, the new rules do seem to be working but, while we should be stoic in not returning to the old ways, we should also be flexible and adaptable when it comes to modifying the rules where we see gaps, loopholes, failures or potential, looming pitfalls arising from them. The rules may be good but shouldn’t necessarily stay the same way forever. Living outside of the madness of Dublin and its influence for the last couple of years, I’m not best placed to comment on this though!

  7. Billy Middleton at 3:49 pm

    Central Bank are correct in the action they took

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