The Central Bank must adopt a cautious approach to mortgage lending restrictions

Fine Gael TD for Dublin Fingal and Member of the Oireachtas Committee for Finance, Public Expenditure and Reform, Alan Farrell has urged caution in relation to the new mortgage lending measures proposed by the Central Bank.

“Having reviewed the proposals outlined in the Consultation Paper published by the Central Bank yesterday, I would be cautious of the measures put forward. While I understand we must do our utmost to ensure the mortgage market doesn’t overheat and a property bubble develop, it is vital that we strike a balance that does not damage the domestic economy.

“The requirement limiting banks from providing a mortgage of more than 80% of a property’s value, and thus mandating buyers to have a 20% deposit, will suck much needed funds from the domestic economy as prospective buyers scramble to get the necessary funds to purchase a home. Furthermore, with a rental market which is not currently meeting its supply demands, the Central Bank’s provisions could inadvertently lead to increased rents.

“The fact that buyers would need to have a 20% deposit will mean that they will inevitably rent for longer, and this will adversely impact on their ability to save. As a result, I believe more people will chose to stay where they are rather than move which would lead to stagnation in the rental market. Such stagnation, at this time, would cause rents to rise further and prevent a greater proportion of people from accessing affordable accommodation. Should this happen, it is possible that a self-reproducing cycle would develop whereby the amount of rental properties on the market declines forcing rents higher.

“As a solution to this, perhaps the regulator should place a greater degree of emphasis on the Loan to Income Ratio and a prospective buyer’s ability to repay their mortgage. More of a focus on LTI would still allow for the development of a more responsible and sustainable system of lending.

“While I am not saying that the Central Bank’s plans will not work effectively, I do have reservations and, for this reason, I would urge Central Bank officials to be cautious when it comes to implementing such measures and to thoroughly examine all of the possible consequences. I’ll be making my concerns known in my submission to the Central Bank’s consultation process.”