New mortgage rules will come - but not anytime soon and they won’t be radical

Central Bank lending review hearing pleas from all sides about raising borrowing limits

The Central Bank of Ireland’s new Macroprudential Measures Committee (MMC) had its first meeting

The Central Bank of Ireland’s new Macroprudential Measures Committee (MMC) had its first meeting

 

The Central Bank of Ireland’s new Macroprudential Measures Committee (MMC) had its first meeting in Spencer Dock on Monday morning.

Chaired by the Central Bank governor Philip Lane, the committee’s role will be to advise on the regular reviews of bank-related national macroprudential measures and to make recommendations about “maintaining or revising these rules as appropriate”.

While the work of this committee isn’t likely to be made into a film any time soon, it has an important role to play as we try to solve the housing crisis.

The second item on the agenda was an “evaluation of mortgage market measures”. This involved a discussion of its ongoing review of mortgage rules, which came into effect in February of last year and are blamed by some for the sluggish growth in home loans in 2015.

Submissions

The deadline for submissions on the mortgage rules closed on August 31st, with 50 received from various industry groups, banks, individuals and academics. This is less than one-third of the 157 submissions that were received in advance of the rules being formulated – which in itself is interesting.

The governor has already indicated that any changes to the rules will probably only be minor and called on interested parties to present the regulator with evidence supporting their calls for change.

A number of those parties have argued that the threshold at which first-time buyers only require a 10 per cent deposit before being approved for a home loan should be lifted from the current level of €220,000. Thereafter, first-time buyers need a 20 per cent lump sum. All other home buyers require a 20 per cent deposit.

The Banking & Payments Federation Ireland wants the threshold lifted to €300,000 but has not sought a change to the 3.5 times loan-to-income limit that banks must also apply when assessing a home loan application.

The Construction Industry Federation wants it increased to €330,000, while Property Industry Ireland (PII) has called for an increase to €400,000 in the greater Dublin area and €350,000 for the rest of the State.

PII also wants the loan-to-income limit raised to 4.5 times from the current level, again to help buyers in the Dublin area. Ulster Bank has called for the income limit to be replaced with an “affordability metric” that considers the term of the borrowing, existing debt levels and the customer’s other commitments, including rental payments.

There have also been calls for some form of regular adjustment to the thresholds to be built into the rules, to reflect inflation and affordability factors, rather than the current static measure that is in place.

In essence, all of these groups argue the limits need to be lifted to assist first-time buyers in Dublin and other large urban areas in getting on the property ladder.

Their calls reflect some of the data in the market. An analysis of the property price register for the second quarter of this year shows prices in Dublin (€388,230), Wicklow (€309,866), and Kildare (€264,142) to be significantly ahead of the €220,000 threshold that applies to first-time buyers. Meath was also above the current ceiling but only marginally at €228,200. Prices in Leitrim, Roscommon and Longford were all below €100,000.

There are many moving parts involved in solving the housing crisis, of which the lending rules are just one. There are also issues around planning permissions, the ability of developers to supply new homes, the delivery of social housing, spiralling rents, a rising population, and allegations of state aid in Nama’s proposed €2 billion housing plan for the greater Dublin area.

Property developers have cited this review as one of the factors for the current sluggish housing market, with some potential buyers sitting tight in the hope that the Central Bank might loosen the restrictions.

They are probably also awaiting the details of the Government’s proposed help-to-buy scheme.

The developers also wonder why the regulator needs almost three months to consider the submissions before announcing the outcome, probably in the third week of November, given that the review began in earnest in June.

And the likelihood is that any changes to the rules will probably be introduced by the Central Bank early in 2017.

They have a point but the important thing is that we reach the right decision. First and foremost, the rules are designed to protect the banks from another crash.

Indirectly, they also ensure that borrowers won’t be completely hammered in the event of another property downturn, as many with 100 per cent mortgages and such like were with catastrophic consequences post-2008.

A record of the first meeting of the MMC is due to be published on October 17th, by which time we might already have a handle on the Central Bank’s thinking on the mortgage rules.

Don’t put your house on any radical changes being announced. Some minor tweaking is probably as good as it will get.

Twitter: @CiaranHancock1

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