Central Bank hints strongly that it won't be changing the mortgage rules

Brendan Burgess

The Deputy Governor addressed the Dublin Economic Workshop at the weekend.

[broken link removed]

She makes some good points:

The evidence shows that the rules are working well.
While the downsides are visible, the benefits are often not visible.
Changing the rules has its own costs as it creates uncertainty.
The case will have to be very strong to justify changing, even fine-tuning, the rules
For first-time buyers in Dublin, the median purchase price over the period was €270,000; the deposit requirement in this case is 11.9 per cent.
The exceptions seem to be working well.
Last edited:
Full text on Mortgage rules

The first review of the mortgage regulations will be published in November. This will examine the effectiveness of the measures against their stated objectives and discuss potential side effects.

Let me briefly reiterate that the objective of the measures is to enhance the resilience of both borrowers and the banking sector. As I have stated previously, the mortgage regulations are designed to be a permanent feature of the Irish system.

The evidence threshold to justify a material loosening or tightening of the rules is significant for two reasons. First, stable rules are valuable for both households and mortgage lenders in eliminating avoidable uncertainty about the regulatory regime. Second, the noisy and volatile nature of macro-financial data means that it would be unwise to seek to adjust the rules in response to minor and temporary fluctuations in the state of the financial cycle: such a fine-tuning approach could actually aggravate financial instability if revisions proved to be unwarranted or badly timed.

There has been much public focus of late on the ongoing review, so I would like to take a few moments now to focus specifically on this.

A body of empirical work is underway to inform this and future reviews. This includes analysis covering household resilience and borrower types, banking resilience and bank lending practices, and house price and credit dynamics. In addition we are examining the impact on the rental market, housing supply and unsecured lending. The review is also informed by recent international evidence and by public submissions on the impact of the regulations.

The call for public submissions closed on 31 August. The Bank received fifty submissions in total. These came from a wide range of individuals, industry experts, and other interested parties and are currently being analysed. A number of submissions highlighted the need to improve awareness on the calibration of the measures and on the availability of allowances under the proportionate cap system.

Early insights which were published in the July Economic Letter capture a period when banks and borrowers were transitioning to the new regulatory environment. [xxvii] However, a number of key points emerged over this period.

As mentioned, an impact on prices can be a by-product of the measures. In this context we have seen a moderation in Dublin house price increases since end-2014, although house price growth remains strong in commuter counties and some other cities.

The latest data on house purchase prices for first-time buyers nationally suggests the median house price was €210,000 in 2015.[xxviii] Under our rules, assuming use was not made of the available exemptions, this would imply a minimum deposit requirement of 10 per cent of the purchase price.

For first-time buyers in Dublin, the median purchase price over the period was €270,000; the deposit requirement in this case is 11.9 per cent.

These requirements are broadly in line with those observed in the market for first time buyers in the period preceding the introduction of the regulations, as financial institutions had already adjusted their lending standards to more prudent levels after the financial crisis.

Second, price expectations have also moderated following the introduction of the measures - although survey participants continue to expect house prices to rise over the short to medium term. Median price expectations have moderated, for both the national and Dublin markets. The mortgage regulations are also reported as influencing these expectations.

Through our review, we also noted a number of differences in the characteristics of borrowers in the data. Under the regulations, a proportion of lending is allowed to take place in excess of the loan-to-value and loan-to-income limits.[xxix]

Among first-time buyers, borrowers with an allowance for the loan-to-value ratio had, on average, a higher income relative to borrowers without an allowance. Couples and borrowers in Dublin also had a higher share of this allowance.

With regard to the loan-to-income ratio, borrowers with an allowance on average had a lower income and were slightly younger. There was also a higher share of single borrowers with a loan-to-income allowance. These aspects give us a greater understanding of the effect of the regulations and of how, and to what extent the allowances have been used. This also suggests initial fears regarding the use of the allowances may be unfounded.

As new data and insights on lending developments and the use of allowances to exceed the parameters of the rules become available, these will be released on a periodic basis. For example, another Economic Letter on lending in the first half of 2016 will be published in a matter of weeks. Similarly, the forthcoming Quarterly Bulletin will include an article entitled ‘Rental markets, savings and the accumulation of mortgage down-payments’ which will give further insights into these dynamics.