MORE STRINGENT banking regulations – such as imposing limits on loan-to-value and loan-to-income borrowing ratios – should be considered to prevent another property bubble, the deputy governor of the Central Bank, Stefan Gerlach, has said.
Speaking at a conference on housing issues at NUI Galway yesterday, Mr Gerlach said: “Tightening these ratios in as the boom gets under way raises the ability of the financial system to cope if the bubble bursts. Their potential use in Ireland warrants further reflection.”
He also said that lending for the purchase of buy-to-let properties, which poses greater risks, could be reduced by forcing banks to set aside higher amounts of capital for these types of loans than for the purchase of homes.
This would ensure that the reliance of banks is “bolstered by the additional capital buffer”, he added.
Forcing banks to build up buffers against performing loans in an upturn “naturally slows bank lending in the boom phase and leaves banks in a better position to withstand loan losses in a crash”, he said.
Earlier, Minister of State for Housing Jan O’Sullivan questioned whether variable interest rate mortgages were still “appropriate” if further property bubbles similar to that which caused the 2008 economic crisis were to be avoided.
Fundamental questions have to be asked, such as those pertaining to “appropriate levels of regulation which allow a market to function while guarding against collapse”.
Ms O’Sullivan was opening the conference hosted by the NUIG centre for housing law, rights and policy.
“We have to conduct a root and branch examination of the housing sector and establish a profile of the way our society should look in the future, and the components of that profile.”
This would include examining “planning regulation and standards to address the mistakes of the past”, she said – a process “already initiated by means of a legislative review group”.
Ireland’s “love affair with bricks and mortar” was nurtured by successive administrations, but there was anecdotal evidence that the social imperative of owning one’s own home might be changing, she said.
“The newest generation of homeowners have seen their dreams shattered and their lives blighted by acquiring a mountain of debt for properties which in many instances have halved in value.”
Ms O’Sullivan said that a vibrant and properly regulated private rental sector must be induced to “achieve a realignment of the housing market away from unsustainable acquisition”.
“This new market must reflect the needs and rights of both tenant and landlord by defining standards of accommodation, their respective responsibilities to maintain properties, and ensuring security of extended tenure for tenants,” she said.
Also addressing the conference, Ms Justice Mary Laffoy analysed a landmark Supreme Court decision in joined appeals relating to housing which found national law was incompatible with the European Convention on Human Rights Act 2003.
