Central Bank resists calls for rolling mortgage-limit exemptions

Central Bank executives are resisting calls for a change in mortgage rules to make it easier for banks to manage the extent to which they offer borrowers exemptions from lending limits, according to sources.

The regulator is set to reveal the outcome latest annual review of the regime on Wednesday.

The Central Bank introduced rules in February 2015 to restrict the amount of money banks can give out to mortgage borrowers, in order to avoid a repeat of Europe’s worst property crash. The measures have been tweaked a number of times since then.

Currently, up to 20 per cent of the value of new mortgage lending for first-time buyers (FTB) in a calendar year can be above the 3.5 times loan-to-income limit set at the outset of the regime.

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However, only 10 per cent of second and subsequent home buyers can breach this level.

Up to 5 per cent of new lending to FTBs can also exceed a 90 per cent loan-to-value (LTV) cap, while as much as 20 per cent of new lending to other homebuyers can breach an 80 per cent LTV restriction.

While banks are largely supportive of the lending restrictions, some have found it difficult to work with the exemptions on a calendar year basis, particularly as a large volume of loans approved late last year in a recovering market were only drawn down in the first half of 2018.

Some lenders are said to be privately pushing the Central Bank to allow them apply exemptions on a rolling 12-month basis.

The latest Banking Payments Federation Ireland (BPFI) data shows that the volume of mortgage approvals for property purchases fell by 2 per cent year-on-year in September, the fifth such annual decline this year, even as drawdowns continued to rise.

“There is some evidence that the banks have ‘closed’ for approvals for exemptions from the Central Bank rules to ensure they can adhere to the rules for the full year, since they are calendar rules and we know banks ‘over-used’ the exemptions in the first half,” Goodbody Stockbrokers Alexander Wilson said in a recent note to clients.

However, senior Central Bankers are now keen, following some adjustments to the rules in the past two years, to ensure that there is stability in the regime, according to sources. They are said to believe that individual banks should better manage their business flows rather than rely on further regulatory tweaks.

The final call on the mortgage rules will be made by the Central Bank Commission, or board, next week ahead of an official announcement on Wednesday afternoon.

Separately, the Central Bank, which has received more than 100 Brexit-related applications from banks, insurers, asset managers and payments firms seeking to maintain access to the single European market as the UK leaves the European Union, expects to see a significant increase in authorisations over the next two months.

While the regulator is continuing to receive applications, these are facing a very tight turnaround in order to be approved by the time the UK exits the EU in March, according to sources.