Ireland’s mortgage market is ‘dysfunctional’

Ireland’s mortgage market is “dysfunctional” and is preventing demand for home purchases from being met, a mortgage expert said on Monday.

Michael Dowling, chairman of Mortgage Brain Ireland, says that in his 25 years in the mortgage market, he has "never experienced such a dysfunctional mortgage market".

The difficulties putative home buyers experience in securing a loan means that mortgage lending remains subdued, despite the high demand for housing, particularly in urban areas.

Davy Stockbrokers said on Monday that there has likely been close to € 3.2bn of new mortgage loans in the first three quarters of 2015.However, its full year forecast of €4.2bn may be hit by the Central Bank’s lending rules, as well as a year-end distortion in previous years, caused by the end of capital gains tax exemptions or mortgage interest reliefs.

“So lending may fall back further than we had anticipated in Q4,” economist Conall MacCoille said.

According to Mr Dowling, this means that Manchester and the greater Manchester area alone will lend more money this year than Ireland.

Of the five banks that are lending, they have their "hands are tied" by the new Central Bank rules on lending, Mr Dowling says. These rules restrict loan to income multiple to 3.5 times income, and means that a typical must have a loan to value of 80 per cent. Compounding this, are stress tests of 4 -5 per cent on the contracted interest rates.

“Every week, I meet single or joint applicants who cannot buy because of the imposition of this stress rate... Why not simply stress test @ 3 per cent i.e. 2 er cent above the current interest rate?” Mr Dowling asks.

Mr Dowling says that given the high number of homeowners on tracker mortgages - some 300,000 - an incentive to allow this cohort to move house would be to allow them to transfer their tracker rate to the new mortgage, with an extra charge of perhaps 1 per cent above their existing rate.

Another bugbear of Mr Dowling’s is the current negative equity mortgage product, which he says, is not fit for purpose.

“Only 300 negative equity mortgages were transacted in 2014. This product needs to be completely revamped. We still have over 200,000 people in negative equity,” he argues.

While exemptions to the aforementioned Central Bank rules are possible, with the rules allowing banks lend 15 per cent of their loan book at 90 per cent LTV or above, and 20 per cent of their loan book at greater than 3.5 times income, there are problems here also.

"However, borrowers cannot qualify for both exemptions and with two months remaining in 2015, AIB and Ulster Bank are closed for any business in 2015 which require an exemption from the Central Bank rules," Mr Dowling said, adding that he expects that the other three banks will close for exemptions within two weeks.

A European mortgage

Meanwhile Brian Hayes, Fine Gael Dublin MEP, has called for the development of an EU wide market for mortgages.

“There’s no reason why the EU couldn’t have a well-developed internal market for mortgages. Currently, we have huge divergences in mortgage products between Member States. Irish customers still face rip-off prices for variable mortgages. The average variable mortgage rate in Ireland is 4.18 per cent, almost 2 per cent higher than the Eurozone average,” said Mr Hayes, noting that in Germany or France, you can get long-term fixed interest mortgage for less than 3 per cent.

The European Commission is said to be currently examining how obstacles can be removed for consumers to have greater access to financial services products in other jurisdictions in the EU.