Central Bank’s mortgage lending rules to be reviewed this summer

Central Bank’s mortgage lending rules to be reviewed this summer

The Central Bank’s mortgage lending rules are set to be reviewed this summer, according to the bank’s new governor.

In an interview with The Irish Times today, Philip Lane said the new lending regime which came into force early last year was here to stay but he said the bank was open-minded about varying the rules if it sees fit.

Under the rules first-time buyers usually need a deposit of 10 per cent of the first €220,000 cost of a home, and 20 per cent of the remainder of its value.

Mover uppers must have a 20 per cent deposit on the total amount of their loan leading to many people being forced away from buying.

Mortgages are also generally limited to 3.5 times gross income for all borrowers which has led to difficulties for people in urban areas, particularly Dublin, to afford a property.

“The rules, I think, could be adjusted upwards or downwards. It’s not the case that the Central Bank picked the most severe rules. Those rules can be adjusted, recalibrated, but it’s not the case that we’d expected to see [this reviewed] every quarter,” he said.

“The case for having rules is very robust and, again, if these rules had been in place in the mid-2000s, a lot of the problems would have been mitigated.”

The Central Bank introduced the rules a year ago but Minister for Finance Michael Noonan called on it last September to review mortgage caps for first-time homebuyers.

The Minister argued the situation had changed since the bank introduced them to damp down the market.

However, Prof Lane said the bank had foreseen many of the developments since the rules came in.

“Not everything we’ve seen should be attributed to these rules. It would be basically an analytical error to attribute everything to these rules but equally a lot of what we have seen is consistent with what the Central Bank said would happen,” he said.

“So the Central Bank did expect that there would be a shift towards more people renting. I think it’s not surprising that there’d be a shift from a softening of Dublin house prices to an increase in house prices in the wider commuter belt.

“So these are partially the effect of the rules but partially also we have a very strongly growing economy.

“So the pressure on the Dublin housing market is partly due to the success of the employment growth in Dublin.

“The softening in Dublin is partly due to the very strong price appreciation in the previous year or two. Markets don’t move in a kind of a smooth fashion.

“So there’s probably the reallocation between Dublin house prices and commuter belt house prices was probably partly due to an overshoot in the other direction in 2014.”

Prof Lane said the rules took force in respect of new mortgages only in mid-2015 as many loans issued before then were pre-approved.

The Central Bank review will be conducted on foot of a full year of data on the operation of the rules, which it expects to have this summer.

Further assessments could be made in a couple of years when a new credit register is well established.

What are your thoughts on the mortgage lending rules?

  • Have they been a good thing or a bad thing?
  • What would you like to see changed or altered?
  • Have they affected you buying a property?

Have your say below…

There are 17 comments for this article
  1. Bee at 3:54 pm

    I’m in the position of wanting to sell in Dublin and move further out, but due (in the main) to the FTB deposit rules, property prices have flattened where I live and increased where I want to live – in the wider commuter belt! It’s very disappointing and frustrating.

  2. Mel at 1:11 pm

    In my opinion the 80% is very severe for anyone who wants to buy their first home and trade up or in some cases down. We had a 10% deposit back as far as the 70’s and it didn’t create a property bubble, the bubble was created when the banks started to lend 100% + mortgages and high multiples of salaries. The 3.5 is fair as this is what really stress tests a persons ability to pay, especially if interest rates increase in the long term. The central bank can pat themselves on the back that they put out the fire when it’s already has come to a natural end. They are now creating an even worse social problem with high rents and the property market becoming stagnant.

  3. Fiona at 6:58 pm

    I don’t think it should be any easier to get a mortgage since we’ve seen the effects of that. It is however a problem trying to buy property with house prices going up again. I’m in my mid-40s and while I’m thankful that I didn’t buy a few years ago and therefore avoided negative equity, I also despair that I’ll never be able to have my own place. I’ve been trying to buy for the past couple of years, put a deposit on a property last June and have found all sorts of problems attached to finalising the purchase (nothing to do with mortgage approval since I was approved for that). The bottom line is that options are limited in the price range that I can afford and it feels like there are so many people in the same situation making it even more difficult to purchase at a reasonable price. A lot of younger people I work with fear that they’ll never be able to buy here and if house prices continue to rise (and even at the current prices), I don’t know how the buyer’s market will ever be good. The situation feels hopeless.

    One major thing that I think needs to be changed is the affordability of a one-bedroomed apartment. Generally anyone looking for a one-bed is trying to buy at the lower price range, yet it isn’t possible to get more than a 70% mortgage for same. I think it effectively rules out being able to afford it at all for most people.

  4. Sebastian at 6:00 pm

    Imagine that , we are working in Restaurant with minimum wages , but never the less renting for the last 10 years and paying aprox. 1100 p/m for o pmrent .
    It’s so enoying that banks never lock into that .
    For the first time buyer 3.5 x per annum
    It’s simply not enough .
    Espaciely with the property price in Dublin .
    My only concern is if the guverment really would like to see the economy to grove ,
    Let’s help people like me get the minimum ( like my own home ).
    Seb

  5. Stephen Kelly at 3:22 pm

    It’s remarkable to see the number of people who clearly still haven’t got what the rules are all about and who haven’t learned from what happened to Ireland through the noughties.

    When they complain that it is difficult to buy a property with a mortgage of ‘just’ 3.5 times annual income what they should realise is that this means house prices are still too high instead of trying to argue for more credit.

    The core problem that caused the horrendous crash resulting in leaving many thousands of home-owners in negative equity and also many thousands of non-performing mortgages was easy access to credit. Interest rates were very low (primarily as a result of the economic shocks caused by the bursting of the dotcom bubble and the Twin Towers atrocity). The availability of this cheap money / easy credit allowed the banks to provide mortgages that were significantly beyond the means of the mortgagees to realistically repay. This resulted in a feedback loop on the prices of houses causing them to increase and thus requiring ever larger amounts of credit.

    It is important to realise that the house prices achieved during this period do not represent a normal market as they occurred during a completely abnormal economic situation.

    Right now interest rates in almost every country of the world are even lower than they were during that period. This is because the reaction of the central banks to the 2008 economic crisis was to pour more cheap money into the markets in an attempt to stimulate economic growth. (Note this policy has failed miserably and is now beginning to cause even worse economic destruction than the crash it tried to prevent.)

    Without central bank intervention like the rules on mortgage lending we would be facing a far worse crash at some point in the next couple of years than we did in 2007-2011. The Irish Central Bank should be lauded for introducing these measures. In fact the problem now is these rules may have come in too late to prevent the looming crash.

    In short EASY ACCESS TO CHEAP CREDIT RESULTS IN BUBBLES WHICH ALWAYS EVENTUALLY BURST. Anything that mitigates against the chances of bubble inflating is good.

    • South Dublin at 4:19 pm

      Agree. I’m in my mid 40s and I don’t have a mortgage but the rest of my friends do (they all bought in 2006 and 2007) and their financial lives are truly truly fecked. My bestie bought a house for 750K… it’s unrenovated. The neighbours house which is exactly the same but renovated sold last week for €370K. My nestie is forever trapped in her horrible mortgage. She will end up paying more than a million for a hosue now selling for 370K. She wishes dearly that she didn’t buy the house and that she could only borrow 3 times her income. My other friends simply can’t affrod to do anything except sit in their overpriced houses and cry as they can’t afford to go on holiday for the 8th year running. All of them have terrible regret at tehir decision. Making mortgages difficult to get is the right thing to do. It stops people making entirely stupid decisions.

  6. Niall at 1:51 pm

    regional house prices rallying 20%…it’s all a bit Dublin centric. There are smarter ways of implementing such now that you have the price register and more price information.

  7. John Moriarty (@jm2833530) at 12:26 pm

    I lament the days of idiocy, now that I am exiting Dublin for good…..

  8. Padraig Troy at 12:17 pm

    With these rules the government will have to build lots of social housing as it forces a lot of people out of purchasing a home and with a lot of private landlords selling up this what has caused the housing problem.
    We can no longer depend on private landlords to supply housing and with little availability of mortgages for most normal working people we need more social housing built or another method where people can purchase there own house but not under the present system which favours high income families only who do not live in Dublin.

  9. traceydriscol at 12:00 pm

    The deposit for first timebuyers is probibitively expensive. 20% is too severe & then 20% again. Far too much . We’re asking young buyers to save e40k for dublin – & e220 is a low average for Dublin.
    Also mover uppers its too much.10% is enuf considering the house prices in Dublin are so high. Its regressive & shuts out tge average wage earner.

    • boc1 at 7:45 pm

      I totally agree with u. Why can’t other people realise this. Average earners are shut out…even if they are supposed to be on a good income…particularly if they are buying on their own…I think those days are gone. They have made it too expensive to have a house on ur own. There shd be more reaction to these rules. They are killing the property market. HELP!!

  10. Robert Holfeld at 11:40 am

    I definitely think they have brought stability to the market. I have to say I agree with the 1st time buyer restrictions and think they are achievable and reasonable. I think the 2nd time buyer restrictions are slightly severe, especially if negative equity owners/vendors are taken into consideration. It would be interesting to see figures on the exceptional mortgage applications for 2nd time buyers. I read an article in December 2015 about KBC asking 2nd time mortgage applicants to wait until the following year, i.e. 2016 as they had already reached their quota (I think 15%) of exceptional approval applications. Exceptional mortgage applications are when the exact lending criteria are not met but the overall application stands in favour of the applicant receiving their requested mortgage amount.

  11. Miriam at 11:37 am

    The rules are dandy, unless of course you are a couple with children living in Dublin on “normal” wages, whereby unless garden sheds and back garden plots start appearing on daft.ie for sale, you are never going to be a home owner!

  12. JK at 11:34 am

    The rules are very necessary and have been proven to stop the acceleration of prices that put so many people in negative equity in the past. People need to get used to saving for deposits as we have seen time and time again how “easy money” leads to so much pain in the future. Also how long will the interest rates be so low? All borrowers need to ensure that they can afford any interest rate hikes which will come.

  13. John at 11:27 am

    They are fantastic. Irish people need to be saved from putting themselves into unnecessary debt. All the vested interests want high house prices and will do everything they can to drive prices higher so something needed to be implemented and they are now having the desired impact. House prices in Dublin are beginning to reverse the increases they made in 2014 and first half of 2015 and will get back to 2013 levels by the end of 2016. Well done to the Central Bank for introducing these rules.

    • :) at 12:12 pm

      I think this is a really simplistic and regressive view on the value of being in Ireland. 2013 values were recession/coming out of recession values. Your view is a bit like saying: I’d like to buy a Christmas tree in December but pay what it’s worth in Summer. The global economy has changed, Ireland has progressed and grown hugely. We’re home to a huge amount of global multi-national companies and with this comes intrinsic value. Prices should be based on location, rental yields, square metres etc not on the attitudes of someone who wants bargain basement prices. Values are not going down to 2013 levels, they’ve risen to the realistic/true values and have stabilized which is what we should all want.

      • Mary at 11:37 pm

        I think you should come lower between “every day” people, without your home. Imagine you are one of them! Than if you start to see more in their valley and you would be honest at least with yourself, you might reconsider your replay again. You are intelligent enough to be of help to others.

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