Closing date for submissions: This Monday, 8th December

Very few consumers make submissions on such consultations. The Central Bank likes getting input from consumers


Central Bank publishes new macro-prudential measures for mortgage lending

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7 October 2014

The Central Bank of Ireland today published Consultation Paper 87 with proposals to introduce new macro-prudential measures to enhance the resilience of the banking sector and households to housing market developments. The measures place restrictions on the loan to value (LTV) and loan to income (LTI) ratios lenders can apply when lending for house purchase and will apply to all lending in Ireland by regulated firms. The measures introduce proportionate limits and specific exemptions which take into consideration that there are some cases which could fall outside strict limits.

Deputy Governor, Stefan Gerlach, said, ‘The primary objective of these measures is to increase the resilience of the banking and household sectors to the property market. In Ireland we are still experiencing the destabilising effects of a property bubble. Our research has shown there is strong evidence that mortgage losses are much higher where borrowers have a high LTV or LTI rate. We believe that measures such as these are a standard part of a well regulated financial system and introducing these precautionary measures should contribute to a stable and well-functioning mortgage lending market.’

Deputy Governor, Cyril Roux, added, ‘These measures have been carefully considered and, taking past experience into account, are being introduced at an appropriate time to ensure borrowers and lenders can withstand potential economic or property market shocks in the future without financial distress. These measures are not intended to replace lenders’ own risk management practices, but rather they should reinforce and strengthen the existing risk mitigation practices used to ensure prudent lending.

‘As it can be assumed that a regime of the type foreshadowed in the consultation is likely to be introduced, we expect lenders not to accelerate high LTV or LTI loan approvals in advance. We will continue our close supervision of lenders and have set out clear monitoring requirements which will apply.’

The measures set out are:

Restrict new lending for principal dwelling houses (PDH) above 80 per cent LTV to no more than 15 per cent of the value of all new PDH loans;
Restrict new lending for PDHs above 3.5 times LTI to no more than 20 per cent of the value of all new PDH loans; and
Restrict new lending to buy-to-let above 70 per cent LTV to no more than 10 per cent of the value of all housing loans for investment purposes.
Submissions and comments on the measures can be made electronically to [email protected] by 8 December 2014.

Anyone planning to make a submission?

I think that there will be intense lobbying and submissions from the lenders and the brokers, so it would be handy to get the consumer viewpoint in front of the Central Bank

Brendan

I guess we are more quiet complainers ?

My simplistic view is that the CB set a starting point, taking the 2 key elements - 20% deposit + 3.5x earnings multiple - it is the 20% deposit that has received the most negative reaction, the government will listen to the grumbles through the media and take up the cause for a lower requirement, they'll get 15% and say 'hey aren't we brilliant' - now how about a general election next year ?

The Central Bank do not listen.

How long has it taken them to issue these Guidelines? Er 7 years.

The fact that their Guidlelines are insane when there is a massive supply shortage - means absolutely nothing to Central Bank.

This is a copy of a Bank of England strategy. What surprised me was how quick they copied it. Within 2 weeks!

I will probably make a submission as I am pursuing an evening banking course. I already have a mortgage.

I have taken your suggestion and posted my submission today.

I have pointed out how, at the probable price of some short-term inconvenience to a small number of house-buyers, similar restrictions in countries such as France have resulted in a stable market which has particularly profited first-time buyers by ensuring they won't be over-penalised by house-price inflation while they save sufficient to borrow and buy prudently.n

St Augustine's famous injunction comes to mind: "Make me virtuous, Lord, but not until tomorrow"
Or, in this context: "Introduce prudent lending restrictions, but not until I have first secured my 100%, 35 year mortgage at 5 times my earnings"

Or, from the point of view of the lenders/agents/developers:
"introduce prudent lending restrictions - but not until my land has doubled in value and I have offloaded it", or
"Not until asset values have increased sufficiently to restore the balance-sheets of my bank", or
"Not until my income as an estate agent/solicitor/mortgage agent is back to pre-crisis levels"

And so it goes.

The closing date is this coming Monday , 8th December.

Brendan