The full extent of efforts to get the Central Bank to change its mind on its new mortgage lending rules are evident in the 157 responses the regulator received to its consultation on mortgage lending and which it has just published on its website.
Introducing an LTV limit of 80 per cent on a sliding scale; giving a concession to those who have been paying rent for over two years; implementing a LTV of 90 per cent on loans of up to €500k; and requiring first-time buyers to go on a financial education course were just some of the measures proposed as an alternative to the new rules.
Last week the Central Bank published its definitive rules on mortgage lending, and it seems that it listened to concerns from those who responded that the original measures could effectively lock-out first-time buyers from the market.
Indeed as the panel opposite shows, contributions from the general public may have made the biggest impact on the regulator, as many FTBs feared that the implementation of the rules would prevent them from ever owning their own home.
The bank’s new rules, which have yet to come into effect, exempt first-time buyers (FTBs) from needing a deposit of 20 per cent on purchases of up to €220,000, but introduce a loan-to-value (LTV) limit of 80 per cent for those looking to trade up. Income multiples of 3.5 times were also introduced across the board.
The banks’ view
Submissions were made from the five major mortgage lenders (AIB, BOI,KBC, Permanent TSB and Ulster Bank) as well as representative bodies such as the Banking and Payments Federation.
While the banks expressed a level of agreement with the proposals, they suggested several different ways of implementing the measures.
Ulster Bank for example, suggested introducing a LTV ratio of 90 per cent subject to a maximum loan of €500k, while Permanent TSB said that it does not agree with LTV limits.
Bank of Ireland said that an income cap of 3.5 times income was "reasonable", but argued that an 80 per cent LTV wasn't "appropriate for the mortgage market at this time". Instead it suggested that a sliding scale of 85 per cent be itroduced by 2016.
“ LTV on its own does not cause default; repayment capacity is the key determinant in assessing the probability of default,” the bank said.
The time-frame of the introduction of the new measures was also a source of concern. Both AIB and BOI argued that any changes to the existing regime must be introduced with a six month lead-in time. Otherwise, it would “present risk to the bank and the consumer in correctly and effectively implementing the changes” BOI said, adding that it would need a three-six months lead in time to accurately project new pipeline conversion, which would be “critical to enable us to manage our exemption levels appropriately”.
The deposit
Requiring homebuyers to come up with a deposit of 20 per cent was a source of concern for the Credit Union Development Association (CUDA), which suggested that it could lead people to avail of unregulated money lenders in order to achieve an otherwise unattainable deposit.
“We would fear the borrower would be forced to obtain the deposit or a portion thereofthrough non-conventional means, such as unregulated money lenders,” it said.
Fianna Fail, in its submission, argued that first-time buyers should be required to demonstrate that they have not acquired the required deposit by means of obtaining expensive short term credit.
Elsewhere, Douglas Newman Good said it was in favour of “ some type of mortgage lending safeguards” but argued that the proposals were “too strict”. It suggested that FTBs could be given the option of taking a home buying course as is standard in some states of the USA. “These types of courses point out the benefits and risks involved in home ownership and teach buyers how to budget effectively”.
Mortgage insurance
While Property Industry Ireland recommended that the introduction of mortgage indemnity insurance by third parties should be explored as a “partial tool in protecting banks from future shocks”, the banks were less keen.
BOI said that it shouldn’t be looked at as a “risk free solution for high LTV lending”, while KBC said that the transfer of risk from one area of the financial sector to another “does not benefit the economy”.
Another issue which was raised repeatedly was the introduction of the much-discussed central credit bureau, which, it was argued, should be introduced simultaneous to the macro prudential measures.
Ulster Bank said that “a functioning and mandatory comprehensive credit bureau” was needed to prevent circumnavigation of proposed controls and therefore unintended transfer of risk”.
Rising rents
Many respondents suggested that a direct impact of the proposed rules would be an increase in rent.
Debt advisory agency Mabs expressed concern that “ the rising cost of rent and the consequential limits on what renters can save towards a deposit, may mean that renters with a solid income who could afford a mortgage will not be able to save the full deposit of 20per cent in a reasonable period of time”. As such, it recommended that where exceptions are made to the ratio in relation to savings for the deposit, “it should be with the express intention of redressing the balance for this group”.
Estate agent Sherry Fitzgerald also expressed a fear that price inflation would continue to be fuelled by inadequate supply, arguing that “we are losing too many landlords too quickly; part of the reason for this is an inevitable consequence of the crash, but also part of it is due to the current tax treatment of landlords”.
Excerpts of responses the Central Bank received from interested individuals:
For
“I write as a member of the Irish public to express my wholehearted support for the proposed new rules imposing LTV and LTI limits for borrowers...I implore you not to retract or water down these new proposed regulations and to impose them in January as planned.”
“My view on this is “Central Bank is 100% correct in implementing all the measures proposed”. Don’t listen to any politicians or any body in this matter. I feel you guys are correct and should go ahead with your proposals.”
“I am writing on behalf of a small group of perspective first time buyers in Dublin. I would like to indicate our support for the possible new restrictions on mortgage lending. We fully support at least a 20% deposit requirement and the need for lending to be limited to 3.5 times earnings.”
“There is something wrong in society when the price of a modest two bedroom home requires the average buyer to indenture himself to a lending institution for decades.”
Against
“I make a relatively good salary yet I am years (minimum 5, probably more) away from having enough savings together for deposit on a property in Dublin. By increasing this 20% LTV requirement you are pushing this even further away from me”.
“This is an absolute disaster of decision. Any chance (s) of me purchasing a property are now gone”
“Those rules are clearly against new buyers. The houses price wont slow down, as predicted as most new houses built would be bought by the business which can afford to pay house price by cash or to pay 30% deposit.”
“As a 35 year old, married father of two (both my wife and myself are professionals earning between 39,000 - 50,000 euro) who has been renting all of my adult life, I am quite fearful that this new system will put home ownership out of my range.”
“Creating a bubble in private rented accommodation will make a 20% deposit hurdle impossible to achieve for low to middle income earners and first time buyers”
“those who will be more directly affected and deterred are those in their 20s/30s who bought during the last boom and have been unable to move due to the fact that they have been in MASSIVE negative equity. Many of these people are the exact cohort of people who desperately do need to move out of these home, as many of them were “starter homes” and inadequate for families”
“How is anybody (except rich employees of the central bank) going to be able to buy a house with your new proposals on lending.”
“Please cut the mortgage deposit to 10%, as full time working parents of two young children who are suffering increased rental prices and high crèche fees itis almost impossible to save for a mortgage at 10% never mind the proposed 20%.”
