The Central Bank’s decision to retain the existing mortgage borrowing rules came despite some none-too-subtle hints from Government, the property industry and the banking sector that change was warranted. Their argument has been that interest rates are low and that loosening the rules would make it easier – and still affordable – for first-time borrowers to buy a home. However, the bank is correct to stand its ground. The key problem in the market is a lack of affordable supply and ever bigger loans is not the answer.
The housing market is in difficulty. More expensive properties are slow to sell and prices in some areas are static or easing back. More and more young buyers want to purchase homes but have hit the Central Bank borrowing limits. Many are also finding it hard to save the required deposit as they are paying high rent. This is pushing many would-be purchasers in Dublin out of the city and into the commuter counties, where properties are significantly cheaper. Long car-bound commutes are required.
The answer is more supply of affordable homes in the right locations. Building levels have increased significantly but they are still below what is needed. And the issue of affordability remains. There is no one solution to this and a clear need for national and local government to find ways of delivering much more quickly.
In the meantime, allowing people to borrow more would just lead to higher house prices. The Central Bank estimates that prices could have been as much as 26 per cent higher were the rules not in place, which would have put them well above Celtic Tiger peak levels. So while easing the rules would allow a cohort of new buyers easier access to the market, it would have left many with large mortgages, relying on the future of house prices and, in the long term, interest rate trends.
We must not return to the house price spiral seen before the bust. The only sustainable way to help young buyers is to work to improve both private and public house supply for purchase and rental. And to achieve all this within a proper planning framework. There is an awful lot to do.
