‘Dysfunctional’ mortgage rules stopping people from buying homes

The Central Bank’s mortgage rules are “dysfunctional” and are stopping people who can afford to buy homes from doing so, property developer Michael O’Flynn has claimed.

Speaking at the inaugural Executive Summit event in Dublin, Mr O’Flynn said developers cannot afford to build and sell homes at a price that “people can get a mortgage at”.

This was because of the high land prices and VAT on one side and the Central Bank’s strict mortgage rules, which limit people to borrowing no more than 3½ times their income, on the other, he said. In the UK, the limit is typically 4½ times their income.

“So you’ve got three situations working there. No one thing is going to solve it, but if you’re pushing more people into rental, how are people going to save if rents are getting higher and higher,” he said.

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Slowdown

Mr O'Flynn, chief executive of the Cork-based O'Flynn Group, claimed the Central Bank was effectively fuelling the rental market by holding down the buying market.

“The very people they’re [the Central Bank] supposedly protecting, they’re actually excluding from the market,” he said.

The current slowdown in house price inflation is being attributed to the bank’s mortgage ceilings. Annual house price inflation in Dublin fell to 1.9 per cent in January, according to the latest figures.

‘Too high’

Mr O’Flynn also said there was no way the Irish market would go from building 20,000 homes a year currently to building 40,000, the estimated level of demand in the market. “I see no prospect of that happening because people can’t afford to buy and our costs are too high,” he said.

For the middle cohort of people, “we need more affordability and shared ownership schemes”, Mr O’Flynn said.

Shared ownership schemes are a cross between buying and renting, typically aimed at first-time buyers. A scheme in London allows householders with incomes of up to £90,000 (€114,000) to purchase a share of between a quarter and three-quarters of a property, and pay a low rent on the remaining portion. Owners can buy additional shares in the property over time.