Central Bank is unlikely to lift caps for first-time buyers

Bank responds to Michael Noonan’s call for review of loan limits for starter homes

 Central Bank building in Dublin. Photograph: Matt Kavanagh

Central Bank building in Dublin. Photograph: Matt Kavanagh


A move by the Central Bank to immediately lift mortgage caps for first-time borrowers is considered unlikely after the Minister for Finance called on the institution to review the loan limits.

Michael Noonan’s intervention, in an interview with The Irish Times, met with some scepticism in central banking circles, where it was suggested that more time would be required to examine the effectiveness of steps taken only eight months ago.

The Minister reiterated concern yesterday about constraints on demand for starter homes, particularly in Dublin, saying the Central Bank’s application of loan limits on first-time buyers may be too restrictive.

The loan caps were a success when introduced in January, but the situation in the market has since changed, Mr Noonan said.

At the same time, Minister for Health Leo Varadkar said it was important to avoid any return to conditions in which young people raced to buy homes because they were afraid of rising prices.

“Essentially, what happened in my generation where we all rushed to buy houses and apartments under the fear that it would cost 15 to 20 per cent more the next year,” Mr Varadkar said yesterday.

Good supply

“But, at the same time, we want to make sure there is a good supply of housing coming on stream and that people who do want to buy a house can do so and do so accordingly.”

It is understood that the Central Bank will not initiate a specific review on foot of Mr Noonan’s public request because the operation of the loan caps is already under constant scrutiny in Dame Street.

This includes examining any unintended spillover in the property market. However, the core aim of the new loan rules is to foster financial stability.

“The new mortgage lending rules were introduced in January 2015,” said a Central Bank statement.

“The key objective of these regulations was to increase the resilience of the banking and household sectors to the property market and to reduce the risk of bank credit and house price spirals from developing in the future.

“As indicated at the outset, the Central Bank is continuing to monitor the implemented measures on an ongoing basis, particularly with regard to achieving the stated objectives of the measures and monitoring any unintended consequences.

“This monitoring is ongoing and will inform any future decisions in this area.”

Mr Noonan said construction industry figures have expressed concern to him that the starter home market was inhibited.

Tom Parlon, chief of the Construction Industry Federation, said the body will make a submission to the Minister, at his request, on the possible impact of increased caps for first-time buyers at particular loan thresholds.