Mr. Ross Maguire:

I thank the committee for the invitation to attend this meeting. I am not sure I have much to add apropos of the previous speakers. I believe what the Central Bank is doing is important because at this time, long before any credit bubble arises, it is seeking to, and properly so, ensure that we do not, if possible, repeat the mistakes of the past. The Central Bank's function is to, in so far as is possible, maintain price stability. While inflation rates are currently low the real cost of living is inflating by reason, primarily, of increased property prices, be that in the rental or purchase markets. The Central Bank has a duty to ensure that as far as is possible we do not repeat the mistakes of the past. The question then is how does it do this. One mechanism is to require a deposit. It is in that context that the discussion around the mortgage insurance schemes arises. In my view, the requirement in terms of that deposit will be an important decision made by the Central Bank. It is designed not to punish first time buyers, even though it will have an affect on them, rather it is fundamentally to avoid banks becoming involved in what Mr. Burgess described as reckless lending or in improvident lending. The idea that the banks will not do that again is entirely misplaced. The banks will do that again once they get an opportunity to do so. Unless there is regulation against this, eventually time will pass and we will all forget what happened in 2007-2008, property prices will continue to increase, developers will recommence developing, credit will return to the market and, as prices increase, there will be a feeling of nothing can go wrong this time and we return to a credit bubble. This will happen unless steps are taken to ensure it does not happen.

It is interesting that while in Ireland when it comes to housing we live very much of the law of the jungle, in other countries, the state is involved in the property market. Here the only involvement of the State in the property market is in terms of social housing provision. In terms of the mortgage market for buyers with a rental market this is very much an unregulated environment. Regulation needs to be introduced in that area. In the 1970s when my parents were buying a house banks did not provide mortgages for first time buyers. These mortgages were provided by building societies or mutuals which were effectively not-for-profit organisations. The current providers of finance for the purchase of properties are profit driven organisations who make their profits from lending. It must be recognised, even at this early stage, that unless the market is regulated and unless credit is restricted we will inevitably fall back into a credit driven bubble. It is this that the Central Bank is seeking to guard against. The question that arises is what affect would the mortgage insurance schemes have on that regulation. My concern is that they are an attempt to avoid regulation. The pretence is that if they are put in place there will be no need for a 15% or 20% deposit. Eventually what will happen is that the deposit required will decrease and be replaced with insurance, which is okay for the banks, but will result in more lending into the market thus driving prices up. The argument against this - this was raised yesterday at this committee - is that it creates an inequality between those who can borrow and therefore have homeownership and those who cannot because they cannot get together the 20% deposit. The Governor made the point that credit does not result in greater equality. He cited the example of the United States where credit has resulted in deeper inequality. The Governor is correct that access to credit does not result in greater equality.

In all of that context, I believe the mortgage insurance schemes, while may be of some benefit, cannot be used to set at nought or undo the proper regulation that the Central Bank is seeking to put in place to limit the amount of credit into the area of homeownership, which is not good for the banks because they want to do that because that is where they will make profit, but it is good for society. At the same time, that will not solve all of our problems. We need also to look at other ways in which people can have sustainable long term stable housing. That, I respectfully submit, involves the state. The cost for a family with three children living in Dublin today renting or meeting mortgage payments on a three bed semi-detached house at the bottom rather than top end of the market is, at a minimum, €1,500 per month. If that is the case, then applying the Insolvency Service of Ireland reasonable living standard, that family would require a gross income of in excess of €70,000 per annum. This is an indication that the cost of living, when rent-mortgage costs in Ireland today are factored in, is a problem. As pointed out by Mr. Deeter, supply will be important in addressing that.

I would be concerned that a scheme like this would create a gap in the hedge to allow banks avoid regulation, which is important, resulting in five years' time in crazy lending happening again.