Loosening of mortgage rules will push up house prices, says Davy

House prices are set to rise even further if the Central Bank loosens mortgage lending rules on Wednesday, Davy Stockbrokers said on Monday.

“If the rules are relaxed, it should help free up credit supply by raising average loan values, providing more impetus to Irish house price inflation,” economist Conall MacCoille said, adding that a Central Bank analysis of mortgage lending in 2015 suggests that the rules are a binding constraint on Irish mortgage lending.

Latest figures from the Central Statistics Office show that the annual rate of residential property price inflation has picked up notably since June, and is now running at the fastest pace nationwide (+7.3%) in 15 months.

In October, the Government announced its Help to Buy scheme, which will allow first-time buyers to apply for a tax rebate of up to €20,000 when buying a new property. It is expected that this will fuel house price growth into the new year, but prices may rise even more if the Central Bank also relaxes its rules.

Bulk of rules will remain

The regulator is set to publish its review of mortgage lending rules this Wednesday, November 23rd. While the Central Bank has been firm in its view that the rules are unlikely to change, speculation is mounting that the rules will be softened to some extent, although the bulk will remain.

One area that may change is the number of exceptions banks are allowed to grant. At present, banks can breach the loan-to-value lending caps on up to 15 per cent of their loan books, but it is expected that this may rise to 20 per cent, in line with the proportion of exceptions allowed for income multiples.

In its submission, Goodbody Stockbrokers argued that the LTV restrictions are the most “binding constraint” of the rules.

The other likely area for change is thought by industry sources to be the €220,000 limit above which first-time home buyers must have a 20 per cent deposit. With house prices continuing to rise, this restriction has proved difficult for many to meet.