The Central Bank is inviting public opinion on its controversial mortgage lending rules as part of a wider review.
Do you have an opinion about the Central Bank’s mortgage lending rules?
Do you think they’re too strict or not strict enough? Are they impeding people’s ability to get on the property ladder? Or do you think they're no longer fit for purpose?
If so, the Central Bank wants to hear from you!
But first, a reminder....
What are the Central Bank’s mortgage lending rules?
The Central Bank’s mortgage rules were first introduced in 2015 to stop a repeat of the reckless lending that was seen in the run-up to the 2008 financial crash.
The rules dictate how much you're allowed borrow for a mortgage in relation to your income, as well as how much you're obliged to save and provide in the form of a deposit.
In short the rules say you're only allowed borrow a maximum of 3.5 times your income. And if you’re a first-time buyer, you need at least a 10% deposit, which increases to 20% for second-time buyers. However exceptions to the rules, often called exemptions, are allowed each year up to a strict limit.
To find out more about the rules and how they work at present, check out our in-depth guide.
What is happening?
The Central Bank has started a comprehensive review of its mortgage rules to ensure they remain 'fit for purpose' and as part of the review is looking for feedback and opinions from the public.
While the Central Bank carries out an annual review of the mortgage measures (and will do so again later this year) this broader review will focus on the overall policy framework, strategy and toolkit for the mortgage measures.
To help with this, the Central Bank has set up an online survey and is inviting people to share their views and experiences on the functioning of the mortgage measures to date.
The survey, which you can access here, will take approximately 5-8 minutes to complete. There are also optional open-ended questions that will allow you to provide extra information you may wish to share – anonymously and in confidence.
The survey will close at 5pm on Friday 30th July, so if you want to have your say, be quick!
Speaking about the review, Director of Financial Stability at the Central Bank, Vasileios Madouros, said:
“The mortgage measures are an integral and permanent feature of Ireland’s macroprudential policy framework. Since their introduction, they have played a key role in building resilience of both borrowers and lenders and have guarded against the emergence of an unsustainable, credit-fuelled housing boom.
“In line with best practice, in addition to assessing the functioning and calibration of the measures every year, we believe it is important to occasionally review the overall policy framework, strategy and toolkit. This will ensure the mortgage measures remain fit for purpose, not just now, but into the future.
The rules have now been in place for seven years and the economy and housing market is in a very different place to where it was when the rules were first introduced.
The rules have also come under increasing scrutiny from government, mortgage lenders and home buyers in recent years as they are deemed as being too restrictive - especially as house prices continue to rise.
For example, in the UK it’s standard to lend around four times income with only a 5% deposit required while in some European countries up to five or six times income can easily be borrowed.
The issue around exemptions is also a bone of contention among lenders with many seeking more flexibility around how and when they can be offered.
At present 20% of mortgages to first-time buyers can breach the 3.5 times income rule each calendar year. However as many people apply for a mortgage which they may never draw down, exemptions can often end up going to waste. Lenders feel if the 20% rule was averaged over three years it would serve everyone's interests better.
However the rules themselves aren’t going to be scrapped.
The Central Bank has been adamant that the rules are needed as they have helped strengthen the resilience of the banking system, stopped a return to reckless lending and are therefore here to stay.
Also, some type of mortgage lending rules exist in the majority of other Eurozone countries - something many here seem to forget. And in places like France and Spain, a 20% deposit is usually required.
And while loosening the rules might be favoured by some, given the huge constraint in housing supply at present, any lax in borrowing standards is simply likely to lead to an increase in property prices in the short term at least, meaning many will be no closer to owning their home.
This was borne out by recent research by the ESRI which found evidence that the Central Bank’s mortgage lending rules have helped keep house prices 9% lower than they might otherwise have been.
However with home ownership continuing to fall and the housing market going from bad to worse, it's clear some tweaking of the rules is needed.
Let’s hear from you!
What do you think about the Central Bank’s lending rules? Would you like to see changes? And will you take part in the online survey?
Get in touch with us below and let us know your thoughts!
And if you're struggling to meet the Central Bank's deposit rules, here are six tips to help you get your deposit together and here's all you need to know about the government's Help-to-Buy Scheme.