Europe’s new senior banking regulator Danièle Nouy has given strong support to the new rules proposed by the Central Bank to try to keep mortgage lending in check. In a strong intervention in the debate on the controversial rules, she said it was “irresponsible to give loans to people who possibly will not be able to repay them”.

The Central Bank recently announced a consultation process on new proposals which would tighten the amount banks could lend in relation to the borrower’s income and also, in most cases, introduce a cap which would mean loans could not exceed 80 per cent of the house value.

Nouy, who is chairwoman of the supervisory board of the Single Supervisory Mechanism (SSM), which will oversee bank regulation, told The Irish Times she "strongly welcomed" the measures, which "have a real impact on stopping asset bubbles in their tracks". She said she could understand the criticisms relating to the difficulties caused to new borrowers, but that the stability of the banking system had to have priority.

Ms Nouy’s intervention is important, as the SSM – which will co-ordinate the work of the ECB and national regulators – formally takes up the reins next week. In future the key regulatory decisions relating to Irish banks will be taken by the ECB, acting on recommendations from the SSM.

The new rules are likely to be introduced next January, but ways are being examined to make it easier for first-time borrowers to get finance. Banks may take out private insurance on loans where the loan to house value cap is exceeded, allowing some lending to those who cannot save a 20 per cent deposit.

However, the new rules limiting the amount of borrowing relative to the income of the borrower are likely to remain in place. Ms Nouy says it is worse for people to find that they cannot afford their commitments than to be declined credit because they feel outside the guidelines.