Central Bank decision on shared-equity housing scheme set for November

Regulator says it is considering interaction between scheme and mortgage rules

The mortgage lending rules restrict buyers from borrowing more than 3.5 times their annual salary or, in the case of second-time buyers, from borrowing more than 80% of the value of the property. Photograph: Getty Images

The mortgage lending rules restrict buyers from borrowing more than 3.5 times their annual salary or, in the case of second-time buyers, from borrowing more than 80% of the value of the property. Photograph: Getty Images

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The Central Bank will formally decide in November on whether the banks can participate in the Government’s proposed shared-equity housing scheme.

In a letter to Sinn Féin’s housing spokesman Eoin Ó Broin, the regulator confirmed that it was considering “the interaction” between its mortgage rules and the Government’s proposed scheme.

The Government set aside €75 million in Budget 2021 for the initiative, which involves the State paying for up to 30 per cent of the cost of new homes in return for a stake in the property. The banks are also expected to underwrite part of the scheme.

However, the regulator is examining whether that would leave them in breach of the current mortgage rules, which curtail lending by banks above certain thresholds.

“The Central Bank has been considering the interaction between the mortgage measures and the First Home shared-equity scheme, introduced under the Department of Housing’s Housing for All plan, and intends to communicate its conclusions as part of the annual review of the mortgage measures due to be published in November 2021,” it said.

“The focus and approach will be consistent with that outlined in the correspondence between the Central Bank and the Oireachtas Committee on Housing in March 2021,” it said.

The mortgage lending rules restrict buyers from borrowing more than 3.5 times their annual salary or, in the case of second-time buyers, from borrowing more than 80 per cent of the value of the property. However, a certain portion of bank lending is exempt from the rules.

Inflationary

In a letter to the Oireachtas Housing Committee last year the Central Bank expressed reservations about the scheme, noting it could be inflationary and may encourage participants to take on too much debt.

The minutes of an internal Central Bank meeting last year also noted that the scheme and other secondary housing-support measures only focused on specific financial aspects of the housing problem “but fundamentally the supply deficit is what needs to be addressed”.

“The scheme as defined could impact on prices thereby increasing levels of personal debt. It is also not clear that the scheme will to any extent promote additional supply,” the minutes said.

They also noted that a “tendency to use average statistics to support the introduction of a scheme disguises the differentials in Ireland, particularly between Dublin and the rest of the country, as well significant variations in house prices within a specific region”.