Central Bank urged to modify proposed mortgage rules

A key property industry lobby group has urged the Central Bank of Ireland to modify proposed new rules for mortgage lending.

In a submission to the regulator Property Industry Ireland (PII) has recommended that the new limits be introduced on a graduated basis.

PII says a requirement that borrowers should have a 15 per cent deposit before being approved for a home loan would be “more appropriate” than the 20 per cent being proposed by the Central Bank, and should be introduced “over time”.

Based on a price of €241,000 for a two-bedroom house in Dublin 8, PII has estimated that it would take a married couple of teachers 51 months to save a 20 per cent deposit, 55 months for a couple on the average industrial wage, and 67 months for two staff nurses.

It also says that mortgage indemnity insurance provided by third parties should be “explored” as a “parallel tool in protecting banks from future shocks”.

PII also calls for a credit register to be operational and data published as a “pre-requisite for the introduction of mortgage lending restrictions”.

At present, the credit register being planned by the Central Bank is not expected to be operational until 2016.

PII also argues for temporary “lesser restrictions” to be applied on mortgages for new houses in specific locations where “demand significantly outweighs supply”.

Regional variances

“These regional variances in lending policy would be phased out when supply comes on stream and when performance indicators recognise a normalisation of the market,” PII says.

PII submitted its paper as part of a consultation process on the rules. Today is the deadline for submissions to the Central Bank.

The regulator has proposed that borrowers be required to have a 20 per cent deposit before being approved for a home loan. Exceptions can be made by banks in 15 per cent of cases.

In addition, lenders must limit mortgages to three and a half times incomes, with the exception of 20 per cent of cases. PII says this is “overly restrictive”.

The Central Bank’s new rules, which are due to be introduced on January 1st, are designed to prevent future shocks to the Irish property market.

PII argues that the changes could freeze up the rental market. “Restrictions to lending will put pressure on rents, and may exacerbate the supply-side problem in urban areas,” it says. “This will have particular consequences for the social housing sector, where the Government current spends €1 billion a year on supports.”

It says first-time buyers would struggle to raise a deposit while also paying rent on their current accommodation. It says this would put them at a disadvantage to cash buyers and property investors.

Unsecured credit

It argues that, in the absence of a credit register, borrowers might use unsecured credit for their deposit. “Recourse to unsecured credit may lead to the exact issues which the Central Bank is trying to avoid.”

PII was set up in 2011 and is an affiliate of employers' group Ibec. It has 90 members and its board includes Roy Barrett, head of Goodbody Stockbrokers, Mark FitzGerald, head of Sherry FitzGerald, Cork property developer Michael O'Flynn, and its chairman Aidan O'Hogan, a former head of estate agent Hamilton, Osborne King.