Homebuyers’ 20% mortgage deposit rule may be phased in gradually

Government sources have welcomed reports that the Central Bank is reconsidering plans to introduce an immediate 20 per cent deposit rule for homebuyers. The Department of Finance has strongly opposed strict lending restrictions of the kind advocated by Central Bank governor Patrick Honohan.

Mr Honohan insisted last week that his position would prevail, but consultations have been going on ahead of tomorrow’s final decision by the Central Bank’s board.

It is expected that a move to a 20 per cent deposit regime will be phased in over a number of years while the impact of the new rules on the market can be assessed.

The introduction of a minimum deposit of 15 per cent appears the most likely option at this stage, with a gradual increase to 20 per cent over a number of years.

At present, some housebuyers can get a mortgage with a deposit of 10 per cent, but only if other conditions have been met. The Department of Finance has argued strongly against the 20 per cent cap on the basis that it would make it impossible for many people to buy a house in the future and would favour the wealthy.

Graduated approach

In its response to the Central Bank’s consultation paper on the issue, the department called for a more “graduated” approach to the introduction of the new rules.

While the department noted that there was a “sound rationale” for the new measure, it pointed to the economic and social impact that needed to be taken into account.

The department also warned about the effect the new rules could have on the rental market, noting that they could result in an upward shift in demand, which could lead to a “potentially significant rise” in rents in the short to medium term.