The Central Bank’s proposals to introduce new guidelines for mortgage lending have generated significant debate. Broadly, its proposals were in the right direction. We cannot go back to the days when significant numbers of households are given mortgages based on the hope of future earnings, rather than the reality of their current budgets. But it is clear, also, that too high a requirement for a deposit for mortgage borrowers could effectively shut many first-time buyers out of the market. The challenge is to amend the rules, without weakening them to a point that undermines the goal of ensuring responsible lending – and borrowing.
The move to impose restrictions on lending in relation to the current income of borrowers is sensible. Affordability is, after all, the key issue. These aspects of the proposed new guidelines have attracted relatively little debate and, subject to any sensible amendments, should proceed.
However the original suggestion that buyers would need a 20 per cent deposit in most cases has generated significant debate. In many cases such a rules remains sensible, but it would impose too high a barrier for first-time buyers. High rents and tax increases have left many with limited ability to save. We cannot return to the days of the 100 per cent mortgage, but rules on how much must be saved before buying need to be realistic.
Some compromise is surely possible. In particular, different requirements could be imposed on first-time buyers with adequate income levels – and somewhat easier rules could apply on less expensive properties.
Part of the problem is the lack of a coherent approach. Housing policy covers a range of areas, including social housing, State moves to encourage new home supply and appropriate oversight and control of the rental market. Recent months have seen some moves in the right direction, but from an economic and social viewpoint.
The central issues remain the need to increase the supply of new homes on the market thus tempering price trends and making it easier for people to move from rental to home ownership.