Much of the attention over Wednesday’s announcement about a modest loosening of the rules on mortgage lending focused on the benefits for homebuyers, especially first-time buyers.
They will now be able to borrow up to four times their income, compared with 3.5 times currently. That’s a potential 14 per cent increase in bank funding as they look to buy their first home. But are they really the big winners?
Or is it, once again, the developers?
It’s certainly been a good week for builders. First the Government crumbles on one of the few landmark features of its recent budget, agreeing to halve the size of the concrete levy intended to help defray the escalating bill for mica redress, and long-fingering the date for its introduction by another six months.
Now, the Central Bank’s move may clear the way for higher home prices.
If there is one thing we know from the experience of previous initiatives to “help people get on the housing ladder”, including help to buy and share equity, it is that money put in the hands of the borrower very quickly finds its way into the developer’s pocket as prices rise accordingly.
On this occasion, the Central Bank has announced the new higher mortgage loan to income rules but they will not come into force for another 10 weeks or so. That’s more than enough time for the construction sector to quietly reassess their pricing strategies for new developments.
The construction and property development sectors have proved themselves as adept at lobbying as the traditional Irish benchmark in that regard – farmers. Whether it’s fast-track planning, reduced apartment building specs or demand-side initiatives, developers have been on the winning side. All the while, efforts to strong arm the sector into accelerating housing supply continue to flounder.
Meanwhile, what’s in the new mortgage rules for hard-pressed buyers remains uncertain. If they get the increased funds, they will likely end up chasing ever higher house prices. It may be a moot point though. Banks are already playing hardball on the current lower loan to income multiple, given the rise of interest rates and the increasingly uncertain economic outlook. Lenders seem unlikely, at least for now, to entertain higher income multiples in their mortgage affordability assessments.
