Home ownership being blocked by mortgage rules, industry group claims

IPAV says rules should be tweaked to allow people borrow 4.5 times their income

The Central Bank’s mortgage lending rules are “effectively locking those on average incomes out of the home-ownership market,” the Institute of Professional Auctioneers and Valuers (IPAV) has said.

In a pre-budget submission, it said the rules should be “tweaked” to allow those earning up to €60,000 to borrow 4.5 times their income, instead of 3.5 times.

This would bring greater fairness to the market and “give hope to a large cohort of the younger generation,” it said.

"It is now clear that the regulations as currently constituted are effectively locking those on average incomes out of the home-ownership market," IPAV's chief economist Jim Power said.



“In an environment of historically low mortgage interest rates, prospective buyers on average incomes, and even those on relatively high incomes in some parts of the country, cannot aspire to home ownership and are being forced into a rental market that is expensive and not functioning properly,” he said.

The Central Bank’s mortgage measures restrict lending for most borrowers to 3.5 times income, or, in the case of second-time buyers, stop them from borrowing more than 80 per cent of the value of the property.

This limits purchasing power in cities such as Dublin, where average prices are a steep multiple of average incomes.

Several industry bodies have complained that the rules are too restrictive but the regulator insists they are there to protect society from another credit bubble and have limited the scope of house price increases since their inception in 2015.

IPAV’s submission argue that that mortgage regulations are sensible and prudent, but adjustments are required when the rules are having negative unintended consequences.

“From the perspective of equity and fairness, limiting home ownership in many parts of the country to those on high incomes, is not acceptable or sustainable,” it said.

“Facilitating home ownership for younger people who aspire to home ownership would take pressure off the rental market by freeing up rental properties, ease rents, and alleviate the growing pressure on the Housing Assistance Payment (HAP),” it suggested.


In its submission, the industry body also said that long-term fixed rate mortgages should become the norm to protect borrowers from short-term interest rate volatility.

"For some time it has been cheaper to service a mortgage than pay rent on a similar property," IPAV chief executive Pat Davitt said.

“ This is so in every area of the country, according to Daft.ie, substantially so in many areas, with the only two exceptions being the wealthy districts of two Dublin locations, Dublin 4 and 6,” he said, noting that even in those atypical areas it is only marginally more expensive to service a mortgage than pay rent.

“The advent in recent months of greater competition in the mortgage market now means that a mortgage can be secured for up to 30 years at a relatively low fixed rate for the entire period of the mortgage,” he said.

“ Those on average incomes are missing out and their future financial security is at risk,” he said.

In its submission, IPAV also for a new reduced VAT rate for new housing of 5 per cent; a strategy to bring vacant homes into the market; the creation of an annual register of vacant homes; and a mandatory Building Energy Rating (BER) for every private home.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times