Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

As the Deputy is aware, the Central Bank of Ireland has published a consultation paper regarding macro-prudential measures for residential mortgage lending. The measures as set out in the consultation document would place restrictions on the loan-to-value and loan-to-income ratios that banks can apply when lending for house purchases. They would apply to all lending in Ireland by regulated firms. The Central Bank has indicated that the primary objective of these measures is to increase the resilience of the banking and household sectors to the property market and to try to reduce the risk of bank credit and house price spirals developing in the future.

The specific measures proposed for principal dwelling houses are to restrict new lending to a limit of 80% of the value of the property and a maximum of three and a half times gross income. The Central Bank has also stated that banks will be able to lend, in some instances, above these thresholds. However, any lending in excess of the loan-to-value ratio must be limited to no more than 15% of the value of new loans issued and, in respect of exceeding the loan-to-income ratio, to no more than 20% of the value of new loans. Other exemptions will also be available in certain circumstances.

I recognise the Central Bank's prudential responsibility and its role in proposing measures to strengthen the financial system. As these particular measures are new proposals in an Irish context, I welcome the fact that the bank is engaging in a public consultation process on them. While there will no doubt be discussion about the precise calibration and thresholds adopted at a particular point in time, macro-prudential rules in the mortgage credit area would nevertheless send a further signal that Ireland has learned from the financial crisis and is putting the architecture in place to prevent a repeat of the crisis. While it is important that credit be available to meet necessary economic and social objectives, it will also be important to ensure that future credit extension is provided on a more sustainable basis.

The Deputy also referred to a mortgage guarantee scheme. My Department is committed under the Construction 2020 strategy to examining the concept of a mortgage insurance scheme and how it might benefit new housing completions in the market. The objective of any such scheme would be to help ensure adequate availability of mortgage finance on affordable terms for new completions, particularly for first-time buyers, as the economy recovers. Of particular interest would be the means by which such schemes could support greater levels of investment in new housing, with the associated benefits for the construction sector and, ultimately, the consumer.

To further assist the evaluation and consideration of such a measure, I recently wrote to the Chairman of the Oireachtas Joint Committee on Finance, Public Expenditure and Reform, Deputy Twomey, with a request that the committee consider the matter of mortgage insurance in an Irish context and, drawing on the experiences of other countries, prepare a report on the issue. It is considered that the committee would be a most qualified and appropriate forum to conduct such an examination.

Additionally, the Deputy will be aware that budget 2015 contains a number of measures to support a well-functioning housing market. In order to support first-time buyers in saving towards a deposit for their first homes, DIRT will be refunded in respect of savings up to a maximum of 20% of the purchase price. This measure will run until the end of 2017.

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