The Central Bank, which will be reviewing its mortgage guidelines in November, has announced that it will seek evidence of the impact of the measures which it introduced in early 2015.
This was stated by the Central Bank’s Deputy Governor Sharon Donnery who said that the submission period will be open for eight weeks from June 15 to August 10.
The loan-to-income ( 3.5 times single or joint applicants ) and loan-to-value ( 80% but 90% for first time buyers up to € 220K ) rules brought in last year by the Central Bank are designed to make the financial system safer, and prevent consumers overloading themselves with debt.
Ms Donnery said that if these measures had been in place 15 years ago, the scale of the crisis would have been significantly limited. She said that data clearly showed a link between higher loan to value and loan to income ratios and subsequent mortgage defaults. She also noted a link between higher LTV ratios and banks’ losses from defaults.
But they have been roundly criticised by property industry groups for depressing the growth of house prices, and ultimately holding back the construction of more houses.
The Deputy Governor stressed that while the parameters of the mortgage rules may in the future be amended in response to cyclical conditions, they have been introduced as permanent features of the Irish mortgage market.
In the Central Bank’s opinion, the measures amount to “prudent lending standards”, and the evidence threshold for any change would need to be high.
The Central Bank’s review of the measures will bring together in-depth analysis of their early performance against their stated objectives, as well as analysing the potential side-effects of the measures.
It will also look at house prices and credit dynamics, as well as insights into the rental market, housing supply and unsecured lending.