4.26
It should be noted, however, that there is an important distinction to be made
between the influence on pricing that arrears have for an existing lender and the
credit risk that a new lender would face in the current macro-prudential
environment. The strict LTV and LTI limits imposed by the CBI are aimed at
reducing, significantly, the capacity of lenders to adopt credit risk on individual
loans
. As a result, a new entrant in the Irish mortgage market would find itself
in a benign pricing environment where risks on newly originated loans have
reduced significantly. Ensuring therefore that there are no disproportionate
barriers to entry is crucial to improving competition to bring about reductions in
mortgage interest rates. One of the most significant barriers for new entrants is
the failure, thus far, to adequately deal with NPLs which brings with it
expectations that any future crisis will result in a similar outcome for lenders. It
is important therefore that policymakers design and implement in the
immediate term a set of consistent and transparent policies for resolving NPLs.
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