Sir, – Arthur Henry asks “If the banks think the assets are undervalued, then why are people having trouble getting a mortgage?” (May 2nd). It is somewhat concerning that many people in Ireland have still not grasped that mortgage applications are assessed based on the financial situation of the would-be borrower and indeed the circumstances and objectives of the lender, in addition to the perceived value of the asset.
Furthermore, if Mr Henry had read the Central Bank paper that prompted his question, he would know that the authors (Gerard Kennedy and Kieran McQuinn) dealt with this specific issue at some length, and explained very clearly why the over-correction of prices and reduced lending go hand-in-hand.
To quote from their conclusion: “the natural inclination for a financial system to deleverage after a significant credit bubble is compounded in the Irish market, where financial institutions are obliged to reduce their balance sheets in order to achieve a more stable funding profile. A growing array of evidence suggests that the difficulty in providing mortgage finance in the Irish market is having a contractionary impact on market activity and price levels”. – Yours, etc,
Sir, – The Central Bank view that property prices are “over-corrected” suggests the problem with economists is they are economic in their perspective. – Yours, etc,