No changes to Central Bank’s mortgage rules
The Central Bank has left its mortgage rules unchanged after its annual review was published today.
However, it will now let banks carry forward above-limit loans approved from one calendar year to the next.
The Central Bank also announced its intention to introduce new rules for property funds.
The mortgage rules are part of the Central Bank’s Financial Stability Review which tests the robustness of the financial system.
The rules on mortgage loan to value limits and borrowers’ income limits remain unchanged.
An ongoing review of the measures will now be open to a public consultation next month.
The review will not be completed until the second half of next year.
In the meantime, banks will now be able to carry forward the proportion of loans, above limits, approved from one calendar year to the next.
They have also been given the green light to participate in the Government’s planned Shared Equity Loan Scheme.
The mortgage measures were first introduced in February 2015 and are aimed at enhancing the resilience of both borrowers and the banking sector.
The Central Bank also intends to bring in new rules on borrowing limits and cash requirements for property investment funds, which now account for 40% of commercial property investments.
Today’s Financial Stability Review says the risks from the Covid-19 pandemic are “receding” and its impact on the banking sector is beginning to “dissipate”.
However, it warns there is a risk of a sudden increase in interest rates if inflation persists.
There are also risks if fallout from events like the difficulties of Chinese property fund Evergrande were to spread beyond Asia.
The Central Bank has been taking a closer look at property investment funds operating in Ireland. It now wants to introduce measures to lower the amount of borrowing by these funds and to increase their ability to repay investors quickly.
Over 200 funds registered in Ireland now account for 40% of commercial property investment here, worth some €23 billion.
The Central Bank left the Counter-Cyclical capital buffer (CCyB) requirement for banks unchanged at 0%, but said it expected to reintroduce it next year as the recovery takes hold.
The bank had cut the CCyB to 0% from 1% in April 2020.
Speaking at a briefing, the Governor of the Central Bank said he expected that increased demand in the property market that might arise from the Government’s new “First Home” shared equity loan scheme would lead to higher prices, if there is not an increase in supply.
However, Gabriel Makhlouf said preventing banks from participating would be disproportionate and that he did not think participating would put their financial stability at risk.
Commenting on today’s decision by the Central Bank that the macroprudential mortgage rules will remain unchanged, Brokers Ireland described the move as “disappointing, if unsurprising”.
“Another year will pass before anything more fundamental such as alleviating in particular, the strictness of the current 3.5 times gross salary limit, could be hoped for,” Brokers Ireland said.
Rachel McGovern, Brokers Ireland’s Director of Financial Services said, however, that the slight change to the carry over of unused allowances was welcome.
Brokers Ireland has proposed to the Central Bank that the current loan to income ratio be changed from the three and a half multiple of gross salary to a percentage of net disposable income (NDI).
“The use of net disposable income would be a far more realistic mechanism for judging affordability,” Ms McGovern said today.
“New long term fixed interest rates of under 3% for periods of 20, 25 and 30 years make the NDI method of calculation sustainable for borrowers,” she added.
Separately, just over a quarter of first-time buyers of homes were aged 30 or under last year, according to an analysis of data carried out by the Banking and Payments Federation.
That represents a halving of the proportion in 2004 when six in ten people taking out mortgages for the first time were in that age cohort.
Using statistics from the Department of Housing, Local Government & Heritage, the BPFI study also found that those moving house – generally “trading up” – are getting older too.