Central Bank told its mortgage rules have imposed ‘significant costs’ on economy

Ireland’s biggest residential estate agent has told the Central Bank of Ireland that the “excessive prudence” of its mortgage rules has imposed “significant costs on the economy” by lowering investment and stifling the supply of new housing units.

In a submission to the regulator as part of its review of macroprudential rules, Sherry FitzGerald has called for the deposit level for first-time buyers to be set at 10 per cent with no limit on value.

At present, first-time buyers require a 10 per cent deposit up to a limit of €220,000. Thereafter, the percentage rises up to 20 per cent of the balance of a house price.

It says this would be more in line with international practice as there are few examples abroad of a value mechanism being considered necessary.

It added that if absolute levels needed to be specified, then the limit should be increased to €300,000. This would “reflect the median value of housing traded in Dublin and also put the limit nearer to the estimated economic cost of producing units”.

Deposit requirement

Sherry FitzGerald also wants the deposit requirement for other classes of buyer reduced to 15 per cent from the current level of 20 per cent.

It has called for the loan-to-income (LTI) ratio to be raised from the current 3.5 times level up to four times.

Sherry FitzGerald said calibrating loan-to-value and LTI tools at their existing “restrictive levels” raised questions as to whether this is an “overly zealous approach” and whether such an approach has net benefits or net costs.

The estate agent said there was a “deep supply side crisis” in the Irish property market at present.

Sherry FitzGerald said an analysis of activity levels during the first quarter of 2016 revealed a year-on-year reduction in sales recorded in the Property Price Register of 9 per cent.

Sales activity slowed in all regional centres while Limerick and Galway saw activity reduced by 23 per cent and 25 per cent respectively.

New dwellings

In terms of new dwellings, sales activity decreased by 5 per cent during the first three months when compared with the same period in 2015.

Cash-buyers accounted for 48 per cent of all residential transactions during the first quarter, which Sherry FitzGerald said points to “significant market access issues for most buyers”.

The regulator received 50 submissions to its review of the mortgage rules and is set to announce the outcome in late November.