Mortgage rules would have limited crisis - Central Bank

Deputy governor calls for public input ahead of review of measures

The scale of the Republic’s financial crisis would have been “much more limited” had the Central Bank’s mortgage rules been in place 15 years ago, the bank’s deputy governor has said.

The rules introduced in February last year require first-time buyers to have a 10 per cent deposit for the first €220,000 of a house purchase and 20 per cent on the balance. For other buyers, a 20 per cent deposit on the entire purchase price is required.

The rules, which were designed to protect the banks from another property crash, have proved to be highly controversial due to the challenge presented to first time buyers to save.

Speaking at the Centre for Economic Policy Research's history symposium in Dublin, Central Bank deputy governor Sharon Donnery said that had the rules been in place 15 years ago, the scale of Ireland's financial crisis would have been "much more limited".

Ms Donnery also announced a public call for evidence of the impact of the mortgage measures ahead of the bank’s review in November.

She said data “clearly showed a link” between higher loan to value and loan to income ratios, and subsequent mortgage defaults, and also between higher loan to value ratios and banks’ losses from defaults.

The mortgage measures, she said, are designed to act as “a restraint on excessive repayment burdens and unsustainable increases in household debt”.

“They are constructed to protect the financial system as a whole across the medium to long term,” she added.

In terms of the public review, she said it would bring together in-depth analysis on the measures’ early performance against their stated objectives, as well as analyse the potential side-effects of the measures.

It will also draw on analytical practices, house price and credit dynamics, in addition to insights on the rental market, housing supply and unsecured lending. It will also focus on the utilisation of allowances to the measures.

The public evidence will inform the review, and the submission period will remain open for eight weeks from June 15th–August 10th.