Central Bank signals reluctance to ease mortgage limits

The central bank has given a strong signal that it is reluctant to ease its strict mortgage borrowing limits to help people buy homes, despite the revised framework of rules.

In a speech at a NUI Galway conference outlining the role of the Central Bank in the housing market, Deputy Governor Sharon Donnery has repeatedly reiterated that the responsibility of policymakers is to increase supply to make the more affordable housing, not increasing credit.

She further warned that bringing too much borrowed money into a high demand market like Ireland’s would risk “the reappearance of a credit price spiral and another painful cycle of boom and bust.” housing ”.

“Looking at the Irish property market and considering whether there is enough supply to meet demand, I think the answer is clear,” said Ms Donnery.

“The demand for housing is strong and the supply has not kept pace.

“Unsustainable credit levels will not lead to a sustainable supply of new housing. “

She added that the challenges facing buyers in the housing market would not be solved by excessive debt or reckless loans.

While Ms Donnery said the Central Bank was revising its framework for mortgage measures that limit borrowing to 3.5 times income in most cases, she stressed that the current system was working as expected and meeting its stated goals for “Increase the resilience of banks and borrowers. to negative shocks ”.

His comments echoed similar remarks by Governor Gabriel Makhlouf last month in a speech to ESRI, when he warned that changing mortgage rules was “not a solution for the Irish property market”.

He said the measures had succeeded in controlling credit risk in the banking system and that a review of the rules did not imply a relaxation of the regime.

“I believe in reviewing frameworks even when they have been successful and the mortgage measures have been successful,” Makhlouf said.

Ireland’s mortgage restrictions – instituted seven years ago to prevent another housing bubble – have been criticized for excluding many from homeownership and even for stifling potential supply.

The rules are among the strictest in the EU, where many countries have borrowing limits four or five times the income for the owners.

A Bank of America study published in October found that Irish mortgages now have the lowest risk profile of any European market.

Irish mortgages have the lowest loan-to-income ratio – at 3.2 times income – in the European Union and one of the lowest loan-to-value ratios.

According to the report, 40% of Irish mortgages have been issued under prudential rules since their inception in 2015.

However, the constraints they place on the purchase of residential properties have been accused of excluding large numbers of potential well-paid buyers from the housing market.

Cairn Homes CEO Michael Stanley, who heads Ireland’s largest homebuilder, said in September that the government’s plan for universal housing was under threat as up to 500,000 middle-income people were excluded from the financing by strict lending rules.

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