Construction body calls for mortgage rules to be relaxed

The Construction Industry Federation (CIF) has called on the Central Bank to relax its rules on mortgage lending to make it more affordable for buyers to secure a home loan.

In a submission to the regulator, as part of a review of the macroprudential rules, the CIF has called for the loan-to-value threshold at which first-time buyers require only a 10 per cent cash deposit to be increased to €330,000 from the current €220,000.

At present, first-time buyers are required to have a 10 per cent deposit up to €220,000 and 20 per cent on the balance of a house price. For all other owner-occupier buyers, a 20 per cent deposit is needed on the entire purchase price.

Under the CIF’s proposal, a first-time buyer would be required to have a deposit of €33,000 on a house valued at €330,000 whereas the current rules require a payment of €44,000.

The CIF said this change would better reflect the price of a three-bed starter home, particularly in city areas.

Joint applications

The federation has also argued that a joint application from someone buying their first home partnered by someone who is purchasing their second house should be considered as a first-time buyer for the purposes of the lending rules.

In addition, it has called for the loan-to-income (LTI) ratio to be increased to four or 4.5 times, from the 3.5 times level at present.

It said people who had been working for up to five years could then have “some chance of securing the required mortgage” for their starter home.

The federation said a 4.5 times LTI would be “reasonable”, particularly for city areas.

It also argued that some recognition should be given for “track records established by mortgage applicants in paying rents for residential accommodation”.

“An index should be available linking borrowers’ ability to pay rent and the borrowers’ employment status to the borrowers’ receiving a higher LTI under the updated Central Bank rules,” the federation’s submission states.

Banking sector capacity

In addition, the CIF has said the capacity of the banking sector should be reviewed if the Government’s target to more than double housing construction activity is to be met. This would ensure that the financial sector had “adequately resources” to meet the demand for new mortgage lending.

The proposals were submitted to the Central Bank on July 28th by CIF director Hubert Fitzpatrick.

Commenting to The Irish Times on its submission, Mr Fitzpatrick said: "The current regulations are precluding a number of first-time buyers from being able to purchase a house. A tweaking of the rules is required and would be warranted at this juncture."

The Central Bank introduced the mortgage rules at the start of 2015 and is currently reviewing their impact on lending. The deadline for submissions closes later this month with the regulator expected to publish its findings in November.

However, the Central Bank has made clear that major changes to the rules are unlikely.

The CIF said the number of house completions this year could be lower than the 12,666 in 2015, at a time when demand is put at 25,000 units annually.

It said last year’s figure was distorted by the fact that many of the properties completed were half built during the recession.