Central Bank easing of mortgage rules ‘a reaction to Government failure’ - Doherty

Relaxation of borrowing rules may lead to increased house prices, mortgage body says

Sinn Féin finance spokesman Pearse Doherty has described the Central Bank decision to ease mortgage rules as a reaction to failures in Government policy.

The Central Bank is set to marginally relax its mortgage lending rules to allow households to borrow up to four times their income in taking on a home loan.

This marks a change on current limits, in place since 2015, where lenders are restricted to only offering loans of up to 3.5 times income to most mortgage borrowers.

It is understood the regulator plans to keep in place its loan-to-value caps, restricting mortgages to 90 per cent of the value of a property for first-time buyers and 80 per cent for those buying a subsequent home.


Speaking on RTÉ Radio’s Today with Claire Byrne show, Mr Doherty said it was not acceptable that people had to borrow €400,000 to buy a house in Dublin and that they should not be in this position.

Apart from the Central Bank mortgage rules, the banks also had their own affordability tests and stress tests to ensure that borrowers could meet their mortgage payments, Mr Doherty said.

In the past, regardless if people could borrow three-and-half times their income, they could not afford a mortgage because of interest rates, he said, adding the situation needed to be monitored very carefully by the Central Bank. The bank’s rules needed to be very flexible and it needed to keep a close eye on house prices, he said.

There is a concern that increasing the amount homebuyers can borrow may lead to increased house prices, the Association of Irish Mortgage Advisors has warned.

Trevor Grant, chairman of the association, said a cohesive plan incorporating all stakeholders is required to “ensure a suitable supply of private and public social housing is created and we need it now”.

Mr Grant said the current rules had largely served the market well “albeit with some unintended consequences for certain cohorts of homebuyers who have seen themselves effectively locked out of the market”.

“Whilst it was not their purpose, they have helped to somewhat regulate property price growth in recent years,” he said.

Mr Grant said he welcomed the planned change and that it would make “a considerable difference to many”.

“Unfortunately, though, we still have a chronic under supply of property to cater for demand and in a market where there is also a similar under supply of rental properties, this is unacceptable from a consumer and society perspective,” he added.

“Therefore there is a concern that by increasing the multiple at this time it may increase prices until sufficient property supply is delivered.

Economist Dr Barra Roantree also said increased credit could lead to higher house prices and that the Central Bank had to strike a balance.

It will be important to see how the Central Bank will move on interest rates — it could come up with a solution that was “more blended” and there was a case for making “tweaks” to the current regulations, he told Newstalk Breakfast on Wednesday.

Rising interest rates could impact housing prices and could squeeze some people out of the market, he said.

Dr Roantree also questioned the imposition of the concrete levy, even at 5 per cent. The measure was “tokenistic” rather than substantial given how small its contribution would be (€30 million) compared to the cost of the redress scheme (€3 billion), he said.

The levy will be economically damaging and was punishing the wrong people — new home buyers. “It doesn’t make sense”, he said.

Vivienne Clarke

Vivienne Clarke is a reporter

Sarah Burns

Sarah Burns

Sarah Burns is a reporter for The Irish Times