The Central Bank has issued a robust defence of its contentious home loan caps, saying commercial banks and mortgage brokers are unable on their own to uphold “prudent” credit standards.
The loan caps will neither add to nor relieve the shortage of new homes, the Central Bank said. It added the rules would contribute to a shift in housing demand and supply towards rental accommodation.
“This highlights the need to remove unnecessary barriers to the provision of rental housing as well as the need for an appropriate framework of rights and obligations for tenants,” said Lars Frisell, adviser to Central Bank governor Philip Lane. “Before supply adjusts, one can expect rents to increase relative to prices, a development already evident in the Dublin area. Several factors including taxes, building regulations, and the relative propensities to let and rent may cause a permanent wedge between rents and user costs.”
Pressure from Noonan
Mr Frisell’s intervention comes amid pressure on the Central Bank to dilute the rules when it reviews the regime later this year. Minister for Finance Michael Noonan has urged the bank to look again at the operation of loan caps for first-time buyers.
Only last week, however, the International Monetary Fund said Ireland’s boom-bust experience underlined the need for action to head off problems in the housing market. Addressing Swedish central bankers, Mr Frisell said the mortgage rules were introduced to protect householders from over-indebtedness and to preserve the stability of the banking system.
The record in Ireland and many other countries showed banks and brokers were not capable of doing this on their own, he said. Mr Frisell said the result of the review will be published in November.
“One thing is clear – allowing lending and prices to spiral off again is not a solution, and would be a betrayal to the next generation of Irish home buyers,” he said. “Higher deposit requirements slow individual households’ entry into the property market, but. . . they prevent us from overbidding each other with ever-increasing amounts of borrowed money.”
Such remarks were rejected was Rachel Doyle, chief operations officer of the Professional Insurance Brokers Association. “The fact is that those in their 20s and 30s living in urban areas are the ones being most adversely impacted by these over zealous rules,” Ms Doyle said. “Many are being unwillingly forced to stay on in rental accommodation paying rents which are often higher than mortgage repayments would be.”
Mr Frisell said it was almost certain the loan caps and forces beyond Central Bank control, such as planning rules, have had an impact on property prices. “Annual house price growth in Dublin has decreased from an unsustainable rate over 20 per cent in 2014 to a modest 3 per cent in 2015, with small decreases recorded in recent quarters.
“In the rest of the country however, house price growth has continued to increase. This is viewed by some as a damaging outcome.”
Some critics had argued the mortgage caps would exacerbate the shortage of housing in Dublin, he said.
“It has been estimated that more than 7,000 homes need to be built annually in the larger Dublin area to meet demand; last year less than 3,000 units were completed. The well-known causes include a smaller set of developers and builders after the crisis, tighter financing conditions, rigorous building standards, and lacking infrastructure to support new housing estates,” he said. “The mortgage regulations neither add to nor mitigate these problems.”
