No change to central bank mortgage rules

The central bank left its mortgage rules unchanged after the publication of its annual review today.

However, it will now allow banks to carry over loans in excess of approved limits from one calendar year to the next.

The Central Bank also announced its intention to introduce new rules for real estate funds.

Mortgage rules are part of the Central Bank’s Financial Stability Review that tests the robustness of the financial system.

The rules on mortgages with value limits and borrower income limits remain unchanged.

An ongoing review of the measures will now be open for public consultation next month.

The exam will not be completed until the second semester of next year.

In the meantime, banks will now be able to carry over from one calendar year to another the proportion of loans, over and above the limits, approved.

They have also been given the green light to participate in the government’s shared equity loan program.

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Mortgage measures were first introduced in February 2015 and aim to strengthen the resilience of borrowers and the banking sector.

The Central Bank also intends to put in place new rules on the borrowing limits and cash requirements of property investment funds, which now represent 40% of tertiary property investments.

Today’s Financial Stability Review indicates that risks from the Covid-19 pandemic are “receding” and its impact on the banking sector is starting to “dissipate”.

However, he warns that there is a risk of sudden increases in interest rates if inflation persists.

There are also risks if the fallout from events like the struggles of Chinese real estate fund Evergrande were to spread beyond Asia.

The Central Bank took a closer look at real estate investment funds operating in Ireland. It now wishes to put in place measures to reduce the amount of loans from these funds and increase their capacity to repay investors quickly.

More than 200 funds registered in Ireland now account for 40% of commercial real estate investments here, worth some 23 billion euros.

The central bank left the countercyclical capital buffer (CCyB) requirement for banks unchanged at 0%, but said it plans to reintroduce it next year as the recovery takes hold.

The bank had reduced the CCyB to 0% from 1% in April 2020.

Speaking at a briefing, the governor of the Central Bank said he expected the increase in demand in the real estate market that could result from the new “First Home” equity loan program. From the government would lead to higher prices, if there was no increase in supply. .

However, Gabriel Makhlouf said preventing banks from participating would be disproportionate and that he did not believe participating would put their financial stability at risk.

Commenting on today’s Central Bank decision that macroprudential mortgage rules will remain unchanged, Brokers Ireland called the move “disappointing, if not surprising”.

“Another year will pass before anything more fundamental can be hoped for, such as easing in particular the severity of the current limit of 3.5 times gross pay,” Brokers Ireland said.

Rachel McGovern, director of financial services at Brokers Ireland, however, said the slight change in carrying over unused allocations was welcome.

Brokers Ireland has proposed to the Central Bank to change the current loan-to-income ratio from a three-and-a-half multiple of gross salary to a percentage of net disposable income (NDI).

“Using net disposable income would be a much more realistic mechanism for judging affordability,” McGovern said today.

“The new long-term fixed interest rates of less than 3% for periods of 20, 25 and 30 years make the NDI calculation method sustainable for borrowers,” she added.

Separately, just over a quarter of first-time buyers were aged 30 or under last year, according to an analysis of data by the Banking and Payments Federation.

This represents a halving of the proportion in 2004, when six in ten people who took out a mortgage for the first time were in this age group.

Using statistics from the Department of Housing, Local Government and Heritage, the BPFI study also found that people who move – typically “swap” – also age.

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