The Central Bank has cleared the way for the main mortgage lenders to participate in the Government's shared-equity housing scheme, despite there being reservations about the plan within the bank itself.
The preliminary decision, which is still subject to the bank agreeing to the final terms of the scheme, clears a potential hurdle to a major part of the affordable housing policy advanced by Minister for Housing Darragh O’Brien.
The scheme will allow the State to pay up to 30 per cent of the cost of new homes in return for a stake in the property, the aim being to make it easier for people who do not have high incomes to gain a foothold on the property ladder.
Critics have claimed it will fan prices by boosting demand at a time when supply is constrained. The Central Bank has warned that the shared-equity plan “could result in upward pressure on house prices”.
Two people familiar with the bank's deliberations said the move to allow mortgage lenders participate came at a meeting last week of the Central Bank Commission, which oversees the institution.
The Central Bank could have blocked commercial banks from taking part in the shared-equity scheme via macroprudential rules that impose strict loan caps on the amount of money home-buyers can borrow.
“It allows the scheme not to fall under the macroprudential rules,” said one person who does not speak for the bank but was briefed on its decision.
Other reservations
The Economic and Social Research Institute has also expressed reservations about the scheme, as did senior civil servant Robert Watt, the former Department of Public Expenditure secretary general.
There was no comment from the Department of Finance, through which the Central Bank communicates decisions on such matters to the Government. The bank itself also declined to comment.
In a letter in March to the Oireachtas housing committee, the Central Bank questioned whether the scheme could have implications for the statutory instrument, a form of secondary legislation, that governs the mortgage lending caps.
Such rules include an “anti-avoidance clause” that forbids mortgage lenders from structuring loans or entering transactions that aim to avoid the loan caps.
“Depending on the precise design of the scheme … lenders’ participation in the scheme could potentially be interpreted as being in contradiction with that anti-avoidance clause,” the bank wrote in the letter.
“This arises as the effect of the scheme is to effectively enable a higher purchase price through the provision of more external finance to the borrower.”
The Central Bank is set to start a review of the mortgage lending rules next month, the first since they were introduced six years ago. It will examine the impact of the rules, whether they have achieved the bank’s aim of preventing runaway housing prices and the evolution of the housing and mortgage markets.
The chief executive of house builder Glenveagh, Stephen Garvey, yesterday criticised the loan caps, telling the Business Post the lending rules meant it was not possible for people to buy apartments in some developments.
