Central Bank to conduct major review of mortgage rules
The Central Bank of Ireland will begin a major review of its mortgage lending rules next month, the first since the measures were introduced in 2015.
The review will consider the effectiveness of rules, whether they have achieved their aims and the evolution of the housing and mortgage markets since their inception.
It comes amid another acceleration in house-price growth, and an outcry over foreign investment funds bulk-buying family homes.
According to the minutes of the Central Bank’s latest macro-prudential meeting in April, “a plan for proposed listening and engagement events regarding the mortgage measures was discussed and agreed”.
The events are part of an “overarching framework review” of the mortgage measures, which limit how much banks can lend to homebuyers, taking place throughout 2021 and 2022.
The review, first announced by Central Bank governor Gabriel Makhlouf in 2019, will run concurrently with the regular annual reviews of the mortgage measures.
“While the mortgage measures are a permanent feature of the market, it is approaching seven years since the introduction of these measures, and the Central Bank seeks not only to maintain the good practice of regularly reviewing the calibration of policy but also the over-arching framework,” the minutes said.
“It will consider the current objectives relative to the overall aim of the measures, the evolution of the housing and mortgage markets and the advent of new data sources, such as the Central Credit Register, allowing for an in-depth analysis on the effective design of the measures,” they said.
At an event in February, the Central Bank’s deputy governor Sharon Donnery said house prices would have been 25 per cent higher without the mortgage rules. The estimate related to the four-year period after the rules were introduced to March 2019.
A separate study by the Economic and Social Research Institute (ESRI), which covered a different timespan, suggested house prices would have been 9 per cent higher without the rules.
Ms Donnery said the macro-prudential rules had helped the financial sector “absorb rather than amplify the shock of the pandemic”.
The Central Bank’s rules restrict the loan-to-value limits on a mortgage to between 70 per cent and 90 per cent of the value of a property, while a separate loan-to-income rule restricts consumers to borrowing 3½ times their salary. Banks can, however, breach these limits for a certain portion of their lending.
The minutes of the meeting also noted that the committee was apprised of a separate review into the Central Bank’s macroprudential framework for bank capital.
This comes as debt ratings firm DBRS Morningstar suggested tough capital requirements – limiting their exposure to mortgage lending – may have triggered the exit of Ulster Bank and KBC from the Irish market.
“This work will inform the bank’s future approach to the appropriate mix and levels of macroprudential capital buffers, consistent with the level of systemic risk faced by the domestic Irish banking system at different points in the economic cycle,” the minutes said.