Honohan wrote to Noonan to complain about mortgage insurance plan

Letter followed announcement of initiative to aid first-time buyers with their deposits

Central Bank governor Patrick Honohan , said he was surprised at the lack of  consultation. Photograph: Cyril Byrne / Irish Times

Central Bank governor Patrick Honohan , said he was surprised at the lack of consultation. Photograph: Cyril Byrne / Irish Times


Central Bank governor Patrick Honohan wrote to Minister for Finance Michael Noonan last May, complaining about a Government initiative to make mortgage loans more affordable for first-time buyers.

Mr Noonan had floated the idea of establishing a State-backed insurance scheme to allow first-time buyers purchase homes with smaller deposits, in some cases, with mortgages of up to 95 per cent of the house value.

In his letter, Prof Honohan said he was surprised that the opportunity was not taken to consult the Central Bank “whether formally or informally” in advance of the initiative being publicly announced.

“Considering the statutory objectives of the Central Bank, advance consultation can have the benefit of helping to avoid adverse unintended side effects of such schemes and contribute to the orderly development of effective Government policy in such matters.”

In a response, Mr Noonan reassured Prof Honohan his input and that of the Central Bank’s were “highly valued in these matters”.

He said the Government’s recently launched Construction 2020 document - which sets out the Government’s strategy for housing and property - had stated that consideration would be given to a mortgage insurance scheme.

The letters were originally released to RTÉ under the Freedom of Information Act.

In response to a request from Mr Noonan, the Oireacthas Finance Committee has produced a report on mortgage insurance.

In November, the committee heard from a panel of experts about how mortgage insurance schemes operated in other states and the feasibility of adopting one here.

One expert said cuts of up to 2 per cent in mortgage rates could be delivered, saving first-time buyers up to €2,500 a year, if a universal scheme was rolled out here provided lenders passed on the capital savings to borrowers.

The committee’s report is, however, understood to express concern that establishing a scheme may actually increase the overall level of indebtedness.

It is also said to express reservations about the supposed protections afforded to homebuyers.

A Department of Finance spokeswoman said the minister was considering the report’s recommendtions in light of ongoing housing market developments.

The possibility of establishing such a scheme here appears to have been put on the back burner, perhaps permanently, by the department amid new Central Bank lending restrictions.

The rules, which include an 80 per cent loan-to-value limit, were announced last month in the face of objections from the Department of Finance, the State’s retail banks and several high-profile elements of the property and construction industry. They do afford first-time buyers an exemption from the new 80 per cent cap up to a value of €220,000, and a sliding scale thereafter.

This article was amended on February 21st