LTVs should be reduced for bigger mortgages

[Sarenco]

Hi Brendan

Given the experience to date, I think it would make sense to move to a tiered approach that is applicable to all borrowers (FTBs and SSBs) and to introduce a new tier for "jumbo" mortgages.

The tiers could look something like this:-

• €0 to €250k - 90% LTV
• €250k to €500k - 80% LTV
• €500k + - 70% LTV

I would drop the LTI limits completely and would remove the ability of the banks to make exceptions from the LTV limits (save perhaps for borrowers in NE).

I would also prohibit banks from offering cash-back incentives on the basis that they can be used to partly circumvent the LTV limits.

I think that approach would substantially address the (relatively minor) issues that have arisen with the Central Bank's rules.

 

[Brendan Burgess]

Given the experience to date,

What experience are you referring to? This might or might not be a good idea, but what experience or evidence is it based on?

I would drop the LTI limits completely and would remove the ability of the banks to make exceptions from the LTV limits

That is interesting linking the two of them. Are they linked? Are you saying, that if you get rid of the LTI limits, it would be necessary to get rid of the LTV exceptions?

 

[Sarenco]

Hi Brendan

By "experience to date", I am really just referring to the Central Bank's loan level data and posts (or the lack of posts!) on here regarding the application of the rules in specific individual circumstances.

It seems to me that the evidence to date shows that the rules are actually having a limited impact on FTBs, at least at a national level. However, I do think a modest increase in the 90% LTV ceiling (from, say, €220k to €250k) might be appropriate to address any undue dislocation of demand from urban to surrounding rural areas.

Where the rules really seem to bite is for a relatively small cohort of borrowers in properties that are unsuitable for their current requirements, that are not in NE but do not have the 20% deposit required to purchase a more suitable property. My suggestion of a tiered LTV approach, that is common to FTBs and SSBs, is largely intended to address that issue.

To bring some balance to these changes, my suggestion is that higher value loans should carry a higher collateral requirement as lenders potentially face higher losses in absolute terms on these loans.

I actually don't have a particular problem with the current rules but, if they are to be recalibrated, I think a tiered LTV approach that is common to all home loan borrowers would be a better approach.

 

[Sarenco]

That is interesting linking the two of them. Are they linked? Are you saying, that if you get rid of the LTI limits, it would be necessary to get rid of the LTV exceptions?

The limits are linked in the sense that current practice (per the IT piece linked below ) is that a borrower can be exempted from either (but not both) the LTV limit or the LTI limit.

If the LTI limits are dropped it seems to make sense to drop the LTV exemptions. This also has the virtue of simplicity and fairness in terms of the application of the rules.

http://www.irishtimes.com/business/...-the-central-bank-s-borrowing-rules-1.2614954