The Central Bank has warned three of the main financial institutions about breaching general mortgage lending guidelines. Over recent months the Bank is understood to have asked them to rein back their mortgage lending policies, which it fears could be overheating the market and could risk leaving the lenders - and their customers - in a difficult position in the event of a downturn.
The Central Bank is believed to have found the breaches of lending guidelines during branch inspections over recent months and warned the institutions at subsequent review meetings. None of the banks or building societies contacted yesterday would concede that it had received such a warning.
The Central Bank has also warned that it will be stepping up such inspections over the next month or so.
Meanwhile, the Bank will be investigating whether current guidelines on the amount which should be lent to borrowers are appropriate. The re-examination of the area is in the light of the report on the property market by Dr Peter Bacon which was published this week. It said changes in lending rules, increasing affordability in the housing market, could be introduced in tandem with a rise in the supply of houses on the market.
Most banks or building societies lend 2.5 times the main income plus once the second income, although these levels are often breached for people on higher incomes.
Dr Bacon suggested that lending a set portion of after-tax income could allow bigger loans and increase affordability for many in the market. The Government has said it will be consulting the Central Bank on which guidelines are now appropriate.
A spokesman for the Central Bank confirmed that it remains opposed to any loosening of the guidelines, although it will be examining the issue in the light of the Bacon report and its position may change.
The Bank has been concerned about lenders breaching the guidelines for some time. The Governor, Mr Maurice O'Connell, wrote to all lenders last July reminding them of the need to be conscious of the need for disciplined lending and this was followed up by detailed inspection of individual branches.
The Bank is worried that in good economic times there is a risk that lenders could relax guidelines, which could then turn into bad debts if the economy turned down and unemployment rose. The Central Bank does not have any statutory jurisdiction over how lending guidelines are applied and the banks merely inform it of their policies. However, the Bank does have a jurisdiction over the overall health of the loan portfolio and how it might affect the banks or building society, particularly in the event of an economic downturn, the spokesman added.
"If we have a concern about prudential supervision and there is a danger that the overall loan portfolio might not cope with changes then we can effectively direct them," the spokesman said.
He said the Bank was looking at this on "both the macro and the micro level" and would be doing even more over the coming weeks.
"We have recently directed that particular branches and institutions should tighten up on policies."
EBS, Irish Permanent, TSB, ICS, Irish Life, Bank of Ireland, AIB and First Active all said they had not received any written correspondence in relation to the issue from the Central Bank.
Ulster Bank said it could not comment. A reply from Irish Nationwide was not forthcoming. NIB last night was unable to say whether it had been contacted.
