BY JOHN ELLIS, FINANCIAL ADVISOR
THE Central Bank is coming under increasing pressure to loosen its mortgage rules from the Banks and the Government.
And, according to a recent RED C poll on behalf of bonkers.ie, it appears the public wants change too. The poll shows there is strong support for a loosening of the Central Bank’s mortgage lending rules to make it easier for people to get a mortgage.
Bank lending rules state that the maximum mortgage available to a borrower(s) is 3.5 times of income. A first-time buyer borrower must have a deposit of at least 10% while a second time buyer or movers must have at least 20% of the purchase price. (However, a very limited number of exceptions to the rules are allowed each year.)
The rules were brought in to ensure financial institution lend in a more prudent and sensible manner. Prior to the 2008 financial crash banks gave 100% + mortgages. Customers were allowed to borrow against the equity of their properties including the family home to purchase properties all over the world!
Then On March 17, 2008, stock markets around the world tumbled, including Dublin’s ISEQ index, contributing to the Irish banking crisis with the collapse in asset prices, an economic recession, and the near failure of the banking system.
The global crisis did aggravate matters in Ireland but the banking crisis was largely self-inflicted according to a study published in the Journal of Financial Regulation and Compliance. It stemmed from the collapse of the domestic property sector and subsequent contraction in national output.
The collapse was due to the risk management practices of the Irish banks and the failure of the financial regulator to supervise these practices effectively.
Due to pressure from many sources last week the Central Bank announced that its mortgage lending rules are to remain the same for at least another year but they are currently undertaking a more in-depth review of the rules .
They invited online feedback from the public and interested parties earlier this year and will review the RedC poll research with interest; a nationally representative sample of just over 1,000 adults (+18) in the Republic of Ireland during November.
It showed that 64% of people say they are in favour of mortgage seekers being allowed borrow more than 3.5 times their income, provided they can demonstrate their ability to repay. This compares to 18% who say they are against allowing people borrow more. A further 13% said they neither agreed nor disagreed while 5% expressed no opinion.
At 70%, those aged between 35 and 44 were most likely to say that the Central Bank’s loan-to-income rule should be relaxed. The research also showed strong support for a lessening of the deposit requirement while 53% of people agree that the minimum deposit requirement of 10% for first-time buyers is too high and should be lowered. This compares to 27% who disagree with any change to the measure.
And, in a separate question, 41% of people said there should be no deposit requirement at all, provided mortgage seekers can demonstrate the ability to repay their mortgage.
Commenting on the research, Daragh Cassidy, Head of Communications at bonkers.ie says: ““No one wants a return to the reckless lending of the past. However, the current rules, while well intentioned, would appear to be helping contribute to a dysfunctional housing market…. as people can’t get a mortgage of sufficient size or save up the deposit.
“However, we need to be careful about what we wish for. Given the limited supply of housing at the moment, any loosening of credit rules without a corresponding increase in the level of housing output, could simply lead to an increase in property prices.”
This feedback and the online input will help inform the Central Bank’s decision on whether the rules should be tweaked more substantially in the future. A decision is expected this time next year.