The Central Bank is to be asked to step up its visits to mortgage-lenders to ensure they are not breaching guidelines on lending. And proposals to make owning a home more realistic for low-income families are being made effective through the shared-ownership scheme.
In his report, Dr Bacon warned that competition between lenders is leading to "some erosion" of the income multiple criteria, under which borrowers are meant to be allowed only 2.5 times the main borrower's income plus the second. He said there was no risk to the system, but there could be a deterioration in the bad-debt arrears position of at least some lenders if the economy slowed down or interest rates rose significantly.
He recommended that the Central Bank conduct on-site examinations of lenders' practices. The aim should be to ensure that the lenders were exercising an adequate duty of care to customers. The Minister for Finance, Mr McCreevy, will bring this to the attention of the Central Bank. A Bank spokesman confirmed that it would give serious consideration to any new proposals.
The Government increased the income limits for the shared-ownership scheme under which people share the cost of buying a home with their local authority. This is designed to improve the position for those on low incomes. The limit for a single-income family has been increased from £15,000 to £20,000 and from £20,000 to almost £27,000 for two-income households.
The structure of the loan has been changed to offer the rental part of these loans at 4.5 per cent rather than 5 per cent. The Minister for the Environment, Mr Dempsey, said existing rents would remain at 5 per cent.
Dr Bacon recommended that mortgage-lenders should consider giving loans over 35 years, with a fixed interest option for the first five or 10 years for borrowers on low incomes. He said the purpose should be to spread repayments over a longer time, rather than allow people to borrow more.