‘Unsustainable’ credit won’t deliver viable housing supply – Central Bank

Giving households access to "unsustainable" amounts of credit to buy homes will not lead to a much-needed sustainable supply of properties, Central Bank deputy governor Sharon Donnery said on Thursday.

The comments underscore a reluctance by the Central Bank to introduce major changes to its mortgage-lending restrictions as it continues to carry out an overarching review of rules introduced in 2015 to prevent a repeat of the credit bubble that burst in 2008.

"Looking at the Irish housing market, and considering whether there is enough supply to meet demand, I believe the answer is clear. Demand for housing is strong and supply has not kept pace," Ms Donnery told a conference organised by NUI Galway.

However, she added: “The fact is, unsustainable levels of credit will not lead to a sustainable supply of new homes. If anything, it risks the re-emergence of a credit price spiral and another painful boom-bust housing cycle.

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“The challenges facing the wider housing market, around sustainability of supply and house price affordability would not be addressed by excessive indebtedness of households or imprudent lending.”

A Red C survey carried out last month on behalf of Bonkers.ie, the price comparison website, indicated that almost two-thirds of consumers favour relaxation of the mortgage restrictions. These limit most borrowers to taking on home loans amounting to 3.5 times their income and require that first-time buyers put down a 10 per cent equity deposit, rising to 20 per cent for anyone else.

Irish property prices rose at an annual rate of 12.4 per cent in September, according to the latest figures from the Central Statistics Office (CSO), as supply continues to fall short of demand.

The State’s biggest housebuilders, Cairn Homes and Glenveagh Properties, have said in recent months that the rules – particularly around loans-to-income – are affecting the viability of certain projects for smaller builders. They are largely reliant on alternative finance providers after mainstream banks retrenched from development lending in the wake of the crash.

Ms Donnery said the Central Bank’s decisions on the mortgage rules framework “will be guided by extensive evidence-based analysis and the public interest”.

Mortgage arrears

Meanwhile, the legacy of the financial crash continues to be felt by households and lenders.

Some 4.7 per cent of all Irish owner-occupier loans, representing 34,182 accounts, were at least 90 days in arrears at the end of September, according to figures published by the Central Bank on Thursday.

The ratio has fallen consistently from a peak of 12.9 per cent in 2013 and is now its lowest level since June 2010.

Accounts in long-term arrears of more than a year accounted for 57 per cent of all cases – or just under 20,000 loans, the bank said.

Banks and analysts expect arrears cases to rise next year in a delayed reaction to the Covid-19 crisis, following a period of unprecedented financial supports for households and businesses.