Irish MEP and former Government minister Brian Hayes said today the Central Bank's plan to require borrowers to have a 20 per cent deposit to get a home loan was "unfair", and called for cheaper longer term loans to be introduced.
Mr Hayes, who is a member of the economic and monetary affairs committee of the European parliament, told a banking conference in Dublin that standard variable rates (SVRs) being charged by Irish banks are too high compared with the rest of the euro zone and called for the Government to explore a solution with the European Central Bank to dilute the impact of loss-making tracker mortgages on their balance sheets.
"We've gone from one extreme of 100 per cent mortgages [in the boom years] and the madness associated with that to another extreme of making it virtually unaffordable for first time buyers [to buy a home]," Mr Hayes told the national conference of the Banking & Payments Federation Ireland.
“We need to ensure that we have a viable mortgage market that is prudential but is also meeting the needs of the real economy. Longer-term, fixed mortgages, or 10-year mortgages, which I know are being offered in a minority of cases in this country, need to become the norm.”
On the Central Bank’s plan to introduce new rules around deposits and income thresholds applied to owner-occupier mortgages, Mr Hayes said: “I don’t agree with the 20 per cent deposit proposal …we need to have longer-term products in the industry which will encourage certainty in terms of borrowers and for the banks in terms of their balance sheets.”
He cited France, Belgium and Germany as countries where banks “lend slightly above the ECB rate for a period of 10 years so that people would have that certainty”.
“Otherwise we will have a market that is still rich with cash buyers, and still excluding first time buyers,” he added.
Mr Hayes noted that with average house prices in Dublin now around € 340,000, the new rules would require buyers in the capital to build a deposit of € 70,000 to get a mortgage.
“I think that is unfair but I also do not believe that actually takes account of one’s ability to pay …[especially when people are] paying huge amounts in rent, multiples of what they would be paying in a mortgage situation.
He said SVRs in Ireland were a “disgrace compared with the rates that exist with other banks in continental Europe”.
"The banks will say it's subsidising the trackers, which are loss making. The reality is that we need a bigger resolution on the tracker issue and I think there's still a role for the ECB, especially under the asset-backed securities programme where we could look at what Mario Draghi described as mezzanine funding where the trackers could be moved to the balance sheet of the ECB.
“Of course, the State would have to offer a guarantee in that circumstance. As long as the trackers continue to hold back the banks it will take us a longer period of time to get our money back as taxpayers and that’s an issue that needs to be addressed in the round again.”
Mr Hayes was a minister of state at the Department of Finance and Public Expenditure and reform from 2011 until his election to the European Parliament this year.
