Lessons from Bank of England on mortgage control proposals

The debate over the Central Bank’s proposed controls on mortgage lending rumbles on with the airing of various interest group’s submissions to the bank.

There is little outright opposition to what the Central Bank wants – bigger deposits and caps on income multiples – but there is great deal of concern about the unintended consequences.

The main one, voiced by the Department of Finance and others, is that moving too soon might be counterproductive as it will stymie the welcome recovery in the property market, as first-time buyers will have to save up for longer to get their deposits and so forth.

Not only that, others argue, the measurers will discourage housebuilding because developers and their financial backers will be put off.

These two arguments are obviously somewhat contradictory, and many of the submissions have the sort of flimsy logic to them that characterised the special pleading that resulted in the ticking time bomb that was property tax incentives the last time round.

There has been very little attention paid to what is perhaps the most important question: will these measures work?

It interesting, in this regard, to note the experience in the UK where the Bank of England has already introduced affordability tests.

According to research done for the Financial Times, the measures have indeed cooled house prices in high growth areas such as the London commuter belt and the cheaper inner-city boroughs.

Some areas have seen prices fall by 5 per cent in the second half of the year, but on a national level they are up 10.4 per cent in the year to October.

Few would argue that a similar scenario in Ireland would be far more desirable than than the dubious distinction of having the world's fastest-rising property market in the wake of the worlds worst crash.