Will the new rules increase likelihood of new market entrant?

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ronaldo

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Just a quick thought that I thought we could discuss.

Obviously, the new rules mean that banks have to be more prudent in their lending - lending a maximum of 3.5 times income and, for second time buyers, 80% LTV.

One of the big stumbling blocks for new entrants to the Irish mortgage market is the bureaucracy and time involved in repossessing when a mortgage falls into arrears.

To counteract this, a new entrant could decide to lend very conservatively. However, lending conservatively would likely result in Irish mortgage applicants choosing, instead, to go with one of the current lenders with looser lending practices - even if rates are slightly higher.

With the new rules, a new entrant could choose to lend conservatively at 80% LTV/3.5 LTI without actually putting them at a disadvantage against their competitors.

Following this criteria when lending is likely to reduce cases of arrears significantly - as people are more likely to cut back in other areas to maintain their mortgage payments if they know they are not in negative equity. Also, they are more likely to sell privately if unforeseen circumstances put them in arrears in the first place, i.e. they're not in negative equity and don't need permission from the bank to sell with a shortfall.
 
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