Central Bank to impose limits on home loans

The Central Bank plans to impose limits for the first time on how much banks can lend home buyers as property values in Ireland soar.

The regulator is said to be preparing to publish a consultation paper on its proposals within weeks.

Banks and lobby groups will have a chance to comment on the plans, which center on introducing loan-to-value and loan-to-income restrictions.

A spokesman for the Central Bank declined to comment.

House prices are surging even as banks grapple with the aftermath of mortgage crisis that forced the government to bail out most of the nation’s lenders.

A quarter of the country’s owner-occupier home loans are in arrears or had their terms eased.

Loans granted during the boom for more than 85 per cent of the property value were most likely to default in the wake of the crash, central bank economists said today.

“There is no evidence the current price increases are credit driven, but the number of mortgage approvals, a potential measure of new mortgage credit demand, rose sharply in the first seven months of 2014,” said central bank economists Niamh Hallissey, Robert Kelly and Terry O’Malley in a report published today.

“This is therefore a key time to investigate the tools available to policy makers to safeguard future lending.”

Irish home prices soared 15 percent in the year through August, driven by a 25 per cent jump in Dublin values amid a shortage of properties in the Irish capital, the Central Statistics Office said on September 24.

Still, values remain 41 per cent off their 2007 peak both for Dublin and nationally. Any limits would particularly affect first-time buyers, according to one of the people.

Irish mortgage approvals rose by 54 per cent in value to €462 million in July compared to the same month last year, according to Banking and Payments Federation Ireland.

In 2006, mortgage lending surged to €40 billion. Davy, Ireland’s largest securities firm, said that some lenders are beginning to relax lending criteria as the property market recovers.

“It appears some banks are willing to lend 4.5 times combined income to higher-rated borrowers, but this is at the upper end of what is typically deemed responsible internationally,” Davy said in a report yesterday.

“Typically a limit of 3-4 times is considered a more acceptable level. The onus is on the central bank to put limits on the amount of money that can be borrowed to help keep house prices in check.”

Bloomberg