The Central Bank has finally brought clarity on the new mortgage lending rules, broadly sticking with its original plan to introduce a requirement that borrowers should have a 20 per cent deposit. There is some relief for first-time buyers, who will require a lower 10 per cent deposit on the first €220,000 they borrow . This is sensible, as requiring a 20 per cent deposit at a time of rising rents and relatively high taxes on income would have effectively shut many out of the market altogether.
The Central Bank has acted because it wants to limit future risks for both borrowers and lenders. Broadly its actions are to be welcomed, even though their impact will inevitably cause difficulties for some, particularly those homeowners who are trading up and have little spare equity after they sell their existing home. Some flexibility is possible under the rules, which allow banks to avoid the limits in a certain number of cases. This latitude might well be applied, for example, in cases where income levels clearly support the level of mortgage being sought, even if the full deposit is not available.
The level of opposition to the Bank’s move in the consultation process was striking. It shows, to some extent, a desire to go back to the era of rising prices, booming building firms and big mortgage loans. The Bank was correct to stick to its guns, while also amending the first-time buyer rules in an important way. The more appropriate response from the political and administrative establishment now is to try to address the other problems in the property market.
In some ways the Central Bank is in an invidious position. It is just one player in what is still a dysfunctional property market, where prices have been driven higher largely due to a lack of supply of new housing. Housing supply is now a vital policy issue for both social and economic reasons. Policy measures in a number of areas are required to address this. Some steps have been taken in the right direction, but roadblocks remain, for example in the length of time that is required to get through the planning process. High rents – partly a reflection of this supply shortage – are also a key issues, albeit a complex one for policy to address.
There is also a wider issue behind the debate on the new rules, reflecting the pressure on many household incomes. Many people who bought homes at the peak of the boom, for example, are now stuck with high mortgages, lower gross pay and higher taxes and charges. The flexibility in the mortgage rules may allow scope for dealing with some hard cases, but the fundamental problem is that incomes have been static or falling and taxes have shot up. Economic growth may gradually help to deal with this, but relatively high taxes on average incomes will remain a problem in the medium term.