Business Week: Relief for first-time buyers as Central Bank eases rules

Also in the news: the UK’s autumn economic statement, the banks and Project Eagle


Like a parent imploring a child to walk rather than run as they’re unstrapped from the buggy, Central Bank governor Philip Lane said he would not shy away from intervening in the event of reckless lending as he relaxed the bank’s controversial mortgage rules.

“If we see that there’s a perverse, unwelcome interaction between excessively rapid lending and excessively rapid increases in house prices, then we can intervene,” he said at the unveiling of “limited” changes to its macro prudential rules.

However the regulator surprised many with the extent of the changes. First-time buyers will now require a 10 per cent deposit when applying for a home loan. Previously, it was 10 per cent on the first €220,000 and 20 per cent on the balance.

Second-time and subsequent buyers will continue to need a 20 per cent deposit. However, the Central Bank has increased the percentage of each lender’s loans that can be exempt from this limit from 15 per cent to 20 per cent. Most of the exemptions will relate to non first-time buyers.

Lane insisted relaxation of the rules, which comes into effect on New Year’s Day, was not the result of pressure from political quarters. He said all submissions were “taken seriously” but that the bank “is independent”.

For his part, Minister for Finance Michael Noonan welcomed the changes and noted they would make life easier for house buyers to get on the property ladder.

Separately, the Help to Buy scheme offers tax rebates of up to €20,000 for first-time buyers who buy a newly built home up to a cost of €500,000. This also takes effect in January.

Stockbrokers Davy and Investec warn that prices for newly built homes could rise significantly next year on the back of the Central Bank’s changes.

Marian Finnegan, chief economist with Sherry FitzGerald, however, said the new rules were “more in line with international practice and it should help underpin an increase in construction activity”.

The State’s biggest estate agent had another cause for cheer this week as it published accounts showing a 7 per cent increase in revenues last year. But profits declined due to investments in additional staff, new offices and technology.

British economy

British chancellor of the exchequer Philip Hammond hasn’t had long to settle into his new digs at 11 Downing Street but he had the unenviable task this week of setting out the lie-of-the-land economically for the UK post-Brexit.

Slower growth, lower tax receipts, higher inflation and more borrowing made up the headlines. Borrowing over the next five years will be £122 billion (€144bn) higher than forecast last March. Britain’s economy is now expected to grow by just 1.4 per cent next year, rather than by 2.2 per cent as forecast in March, rising to just 1.7 per cent in 2018.

Hammond told MPs at the House of Commons he was abandoning the target of balancing the budget by 2020, instead replacing it with an ambition to reach a budget surplus “as soon as practicable”.

Pertinent for the Republic, he also confirmed plans to reduce Britain’s corporate tax rate from 20 per cent to 17 per cent by 2020. In Northern Ireland, the rate is to be cut to 12.5 per cent from April 2018, bringing it in line with the Republic.

However, the reduction “will not be enough to attract inward investment on its own”, accountant EY’s Northern Ireland office warned. Managing partner Michael Hall said the Republic would still hold the aces in terms of attracting foreign investment due to its access to European markets.

Brexit relocations

One possible new tenant for the Republic is US insurer AIG which is considering moving its European headquarters from London to another EU country due to Brexit.

It joins a growing list of finance companies that have said they may shift operations to continental Europe or Ireland to maintain links to customers after the UK leaves.

Separately, commercial real estate adviser CBRE said Dublin has more than enough office stock in the pipeline to cater for any rise in demand from companies relocating as a result of Brexit. The “bigger issue”, it said, “is to ensure that there is sufficient housing and adequate infrastructure to facilitate this additional demand”.

Foreign investment is all very fine but, for the thousands of Irish exporters who trade with the UK, the outlook is grim. New research from the Economic and Social Research Institute warned exports to the UK could drop by more than 30 per cent if a special trade deal is not agreed.

Overall, it said, total Irish exports could drop by more than 4 per cent, representing an annual loss of €4.5 billion in cash terms.

It is not just the exporters who would be affected as the drop would drive up prices for consumers, while trade could be hit hard in some areas as products become unaffordable.

AIB explains itself

AIB was before the Oireachtas finance committee this week and the bank’s chief executive Bernard Byrne revealed that 14 AIB mortgage account holders may have lost their homes by not having the correct tracker rate applied to their loans.

The discovery was made on foot of an order by the Central Bank for it to look at its entire mortgage book as part of an industry-wide review. To date, Bank of Ireland has not provided any details about how many of its customers might be affected.

Byrne revealed that AIB has paid €6.5 billion to the State since being bailed out and expects to pay back the whole amount over time. He added that the “ultimate timing” on that would depend on when the Government decides to return the bank, or part of it, to private ownership.

He also said the bank has written off €1.3 billion in mortgage debt since the crash. The bank’s repossession rate is about 1 per cent of its arrears cases, he added.

The State’s coffers also received notice of a payment from the liquidators of the Irish Bank Resolution Corporation (IBRC). An initial payment to unsecured creditors within a fortnight will include a cheque of about €275 million for the State.

Project Eagle at the PAC

The Project Eagle controversy has been rumbling on with the Public Accounts Committee (PAC) investigating Nama’s sale of its Northern Ireland property portfolio. Patrick Long of UK firm Lazard, which advised Nama on the sale, told the committee it wanted a quick sale as it was afraid of losing an offer from US company Pimco.

“While Nama did want to market it, they did not want the consequence of that process to be that they lost the offer from Pimco,” he said. Nevertheless, he said the auction succeeded because the buyer, Cerberus, paid the best price .

Former Nama executive Ronnie Hanna told politicians he could not appear before the committee to give evidence as he remains under caution following his arrest earlier this year by police investigating the fallout from the sale.

Hanna wrote to the PAC and said he had not received word from the UK’s National Crime Agency, the Police Service of Northern Ireland or the Public Prosecution Service that he is no longer a suspect. The former Nama head of asset recovery’s letter to the committee said he vehemently denies the charges.

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