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Irish Independent
Irish Independent
Charlie Weston Twitter Email

Loosening mortgage rules so homebuyers can borrow more will push up house prices, admits Central Bank boss

Central Bank Governor Gabriel Makhlouf

The governor of the Central Bank has admitted the changes to mortgage lending limits will lead to a rise in house prices .

Gabriel Makhlouf insisted, however, the increases in property values would be “modest”.

Property prices are now above Celtic Tiger levels, prompting many to question why the Central Bank has moved now to ease its lending rules.

A typical nurse and garda buying their first home can currently borrow €280,000 if they have a joint income of €80,000.

This will increase to €320,000 from next year when the Central Bank changes are implemented.

Asked whether altering the rules at this time was a bad idea, Mr Makhlouf said he was confident the changes were sensible.

“If I thought it was the wrong time to do it, I wouldn’t have done it,” he said when asked whether the timing of the changes was poor because interest rates were rising and the economy was slowing down.  

The easing of the rules was about financial stability, not about controlling house prices, he said.

However, he admitted the changes to lending limits “will have a modest impact on house prices”.

Many critics see the moves to ease lending criteria as the wrong approach when property prices rises are starting to ease off and interest rates are increasing.

Critics claim the Central Bank’s moves will further fuel property price inflation.

Mr Makhlouf said mortgage interest rate rises would play a role in moderating house price increases.

He insisted the Central Bank was not “loosening” its mortgage lending limits but “recalibrating” them.

The changes will mean first-time buyers will be able to borrow up to four times their income for a mortgage from January. Currently, they can borrow three-and-a-half times their income.

There will also be more exemptions to the rules available to first-time buyers.

Second-time buyers will no longer need to have a 20pc deposit when moving to a new home.

From next year, they will be able to secure a mortgage if they have a 10pc deposit.

Banks were told to take the track record of potential buyers meeting high rental payments into account when assessing them for a mortgage.

Building companies such as Cairn Homes and Glenveagh Properties have argued the extent of the limits was affecting the viability of certain projects for smaller builders.

They say smaller builders are reliant on alternative finance providers after mainstream banks retrenched from development lending in the wake of the financial crash.

Brian Hayes, chief executive of the Banking and Payments Federation industry lobby group, said its members recognised the importance of ensuring the stability of the banking system while providing essential credit to potential homebuyers and protecting Irish households from the risk of over-indebtedness.

The sector also recognised the role that the rules had played in “ensuring more prudent lending, a reduction in the overall levels of consumer indebtedness, and the establishment of reasonable and transparent requirements expected of customers seeking mortgage approval,” he said.

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