Leo Varadkar (Dublin West, Fine Gael) | Oireachtas source

The Deputy made some very good points in his remarks. As the House will be aware, the objective of the Central Bank macro prudential mortgage lending rules is to mitigate systemic risk and promote financial stability, to increase the resilience of the banking sector and households to the property market and to reduce the risk of credit spirals from developing in future. They are there to avoid a boom and bust in home values, people ending up in negative equity and a future banking crisis. They are there to prevent the mistakes of the past being repeated.

However, we must make sure that we are not fighting the last war when it comes to mortgages. The mortgage rules have very much helped to keep a lid on house price inflation, which is a good thing but they have also driven up rents, which is not a good thing. Like Deputy Fitzpatrick, I would know and would have been contacted by many people who are paying very high rents of between €1,600 and €1,800 per month. They are struggling but are managing to pay them and yet they cannot get a mortgage of €1,500 per month. They cannot get a mortgage for a lower amount than they are currently spending on rent and they find that difficult to accept and so do I. With this in mind, the Central Bank has indicated that it will carry out an in-depth review of lending rules over the course of this year and into next year. I would encourage the bank to expedite that review and the public consultation that it intends to carry out, through which it will hear the voices of people who are caught in the rent trap in this way, paying higher rents than they would pay if they were able to get a mortgage they could afford.

In assessing a borrower's ability to repay a mortgage, lenders can and do take account of applicants' existing financial commitments, including their rental payments. However, there is a significant difference between a rental contract and a mortgage contract to purchase a home and this must be borne in mind. A house purchase and associated mortgage contract usually has a more long-term character than a rental contract which leaves the house purchaser or mortgage borrower more exposed if there is a future shock to his or her income, house prices or interest rate, for a longer period.

The Central Bank mortgage macro prudential measures apply certain loan to value and loan to income restrictions to residential mortgage lending by financial institutions. In general, the maximum mortgage limits are 3.5 times the borrower's income and for first-time buyers, 90% of the value of the residential property. For second and subsequent buyers, the maximum mortgage limits are 3.5 times the borrower's income and 80% of the value of the home. However, banks have some flexibility at their discretion to provide mortgage loans in excess of the specified regulatory limits but it is a commercial matter for lenders as to whether they avail of this discretion. For example, up to 5% of lending to first-time buyers can be above the 90% threshold and up to 20% of lending to second-time borrowers can exceed the 80% threshold. Furthermore, up to 20% of lending to first-time buyers can exceed the 3.5 times income limit.

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