Banking group urges Central Bank to relax mortgage rules

The Banking & Payments Federation Ireland (BPFI) has urged the Central Bank to relax the loan-to-value (LTV) rules on mortgage lending to assist house-buying in Dublin and other large urban centres.

The banks lobby group wants the threshold below which first-time buyers have to pay only a 10 per cent deposit to be lifted to €300,000 from the current level of €220,000.

“This will particularly support those seeking to purchase homes in large urban centres,” its 50-page paper states.

Equity release

The federation has also called for equity release to pay for home improvement to be exempt from the LTV regulations, and it wants the time limit for valuation reports extended to four months from the current two, arguing that the current requirement is “unnecessarily tight”.

In addition, it wants special consideration to be given to the renters’ cohort and second-time buyers who have only recently returned to a “minor amount of positive equity”.

“We suggest that consideration be given to facilitating those who have proved rental outgoings over an agreed amount and for a specified minimum time period (24 to 36 months) perhaps with an adjustment of the 90 per cent LTV cap,” it said.

The federation has also asked for the rules to limit the data obligations for lenders to the specific requirements of the regulations.

The Central Bank received 50 submissions to its review by the August 31st deadline. This comprised 24 from individuals and 26 from institutions and academics.

Submissions review

A spokeswoman for the Central Bank said the submissions would now be reviewed with a decision to be announced in November. The regulator has already signalled that any changes to the rules would probably only be minor.

The lobby group's call for the LTV threshold to be lifted mirrors a submission made recently by the Construction Industry Federation, which urged the Central Bank to increase the ceiling to €330,000.

The macroprudential rules were introduced by the Central Bank in February 2015 as a key measure to prevent another financial crash. They require first-time buyers to have a 10 per cent deposit for the first €220,000 of a house price and 20 per cent for the balance. All other buyers must have a 20 per cent deposit in place.

Up to 15 per cent of home loans issued by lenders can fall outside these parameters.

In addition, the Central Bank requires that income limits of 3.5 times are applied by the banks before approving mortgages. The banking federation has not asked for this cap to be adjusted.

It said the LTV regulation was affecting first-time buyers in a “disproportionate way”, particularly in Dublin, Cork and Galway. “The result is the exclusion of some cohorts of potential borrowers from the property market,” its states.

Mortgage drawdowns

Its submission noted that that the value of mortgage drawdowns in the first half of the year amounted to €2.3 billion, a year-on-year increase of €200 million. Cash sales accounted for almost half of all transactions in the second quarter of the year.

The number of mortgages approved in the first six months fell by 1.6 per cent to 14,314 although the value of these loans rose by 1 per cent.

In terms of equity release, the federation said exempting this category from the LTV cap would “provide significant benefit” to home owners, “allowing banks to support them in extending or upgrading the property and resulting in an improved value of the housing stock”.

Top-up mortgages accounted for 8 per cent of the volume and 2.9 per cent of the value of all loans in the second quarter of this year.

The BPFI commissioned the Economic and Social Research Institute to assess the impact of the macroprudential rules to inform its submission.