THE Central Bank has strongly urged borrowers to be cautious and warned that if the housing market takes a downturn people could end up with loans exceeding the value of their house.
Dr Michael Casey, assistant director general of the Bank, said lenders as well as borrowers should be exercising caution.
Responding to reports in The Irish Times yesterday that lenders were stretching the guidelines on the maximum loan allowed, Dr Casey warned that there was a risk of the Irish market developing like the British in the late 1980s, when many borrowers were left with the outstanding value of the loan exceeding the value of their property.
"There has been an assumption that what happened in Britain could not happen here, but there is always a first time," he said.
However, the managing director of the Irish Nationwide, Mr Michael Fingleton, said last night the Central Bank would not succeed in its efforts to talk down the market.
The only way it could do so would be to impose some form of rationing, and the lenders would not voluntarily co-operate with that. There will not be a voluntary agreement among institutions to limit lending, he said.
The authorities are believed to be concerned about a number of possible breaches of the mortgage lending guidelines. The Minister for Finance, Mr Quinn, also recently raised concerns about the inflationary dangers from the property market.
But spokesmen for a number-of the banks and building societies contacted yesterday insisted that they do adhere to Central Bank mortgage guidelines and are not "overlending".
The Minister of State for Housing and Urban Renewal, Ms Liz McManus, stressed yesterday that lending institutions must adhere to lending guidelines. "It is important that there is no hyping of house prices. I am urging all those professionally involved to ensure this is not the case."
The Consumers' Association of Ireland said there was a major question mark to be raised about whether banks and building societies are exercising a proper duty of care in a property market which now appears to be at boiling point".
It claimed that lenders are providing up to 100 per cent finance and lending at ratios that will be "insupportable" if interest rates rise in the years ahead.
The Central Bank will be writing to all the lenders next week and after it has collated the answers will be calling them in for meetings.
The main issues worrying the authorities are how the lenders treat spouse's income and the extent of checks on both the level and permanence of salary arrangements.