Michael McGrath (Cork South Central, Fianna Fail)
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4. To ask the Minister for Finance if his Department will be making a submission to the Central Bank of Ireland on mortgage lending rules; his views that a State-backed insurance scheme for first-time buyers would conflict with the proposed Central Bank of Ireland rules; and if he will make a statement on the matter. [42041/14]

Michael McGrath (Cork South Central, Fianna Fail)
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This question is quite similar to Question No. 2 in the name of Deputy Pearse Doherty which related to the proposed Central Bank rules on minimum mortgage deposits and the Minister's views on a mortgage insurance scheme. It seems that the thrust of the Minister's comments in response to that question was that the two issues needed to be viewed separately. He suggested the proposed Central Bank rules needed to be examined on their own merits. He also said that if a mortgage insurance scheme was introduced, it would not be designed to circumvent Central Bank rules. Will he clarify his thinking on the issue? I will elaborate on my own views.

Michael Noonan (Limerick City, Fine Gael)
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As I have indicated, the Central Bank recently published a consultation paper on macro-prudential measures for residential mortgage lending. The bank is required to consult the Minister for Finance on proposed measures in this area. It may also consult others, as it considers appropriate. Given the wide public interest in this matter, I welcome the commencement by the Central Bank of a public consultation process on its macro-prudential proposals. I normally take the opportunity to reply to such Central Bank consultation processes. As the Deputy will be aware, the deadline for providing comments for the Central Bank is 8 December next. 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 Irish market. The objective of any such scheme would be to help to ensure the adequate availability of mortgage finance on affordable terms for new completions.

To further assist the evaluation and consideration of such a measure, I recently wrote to the Chairman of the Joint Committee on Finance and Public Expenditure and Reform. I asked the committee to 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 is the most qualified and appropriate forum to conduct such an examination. In other countries mortgage insurance schemes can operate with macro-prudential frameworks. This is recognised in the Central Bank consultation paper which asks whether some adequately insured mortgages with higher loan-to-value ratios should be exempt from the proposed measures. Obviously, this is a matter that will require discussion and consideration as part of the Central Bank's consultation process. To answer the Deputy's question precisely, they are two separate issues, but they are obviously connected. They will be connected as people debate the issue.

Michael McGrath (Cork South Central, Fianna Fail)
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While it would be good to require some level of minimum deposit, a 20% deposit requirement would be excessive in the majority of cases. I would have thought a deposit of between 10% and 12% would be more realistic and achievable for people seeking to buy a home for the first time. It seems from a reply to a parliamentary question that I received last night that these rules will not apply to institutional investors. It seems that private equity funds buying portfolios of residential properties will not come under the requirements of the new Central Bank rules. That is an issue. As a member of the Joint Committee on Finance and Public Expenditure and Reform, I will play my part in examining the mortgage insurance scheme. I welcome the Minister's statement that he is in favour of private sector involvement. My own view is that, to be frank, the State has enough contingent liabilities. I would be reluctant, therefore, to allow the State to sign up to further liabilities. This proposal needs to be examined on its own merits. Will the Minister be making a submission on behalf of the Government in the coming weeks?

Michael Noonan (Limerick City, Fine Gael)
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When the Central Bank invites consultations, the Department of Finance usually makes a submission. We are preparing one and it will not be a Government submission, rather it will be a submission by the Department of Finance in response to the Governor of the Central Bank's invitation to make a submission. It does not have to be an institutional submission. Any Deputy who has well formed views can make a submission before 8 December. Obviously, that will have influence also. The Central Bank is aware that Deputies have very close contact with their constituents. The views of Deputies are valuable when the Central Bank is considering its policy on issues such as prudential rules for mortgages. I agree that there should be rules. We can debate whether a requirement to have 20% of the mortgage would be too high. In the consultation paper there is an exception whereby a bank can lend up to 15% of its loan book in mortgages in excess of 80% of value. If there was a guarantee, it would provide for extra flexibility. While the two issues are separate and should be considered separately, there is a connection between them.

Michael McGrath (Cork South Central, Fianna Fail)
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It strikes me that a 20% minimum deposit requirement would be too onerous for many. A couple buying a house in Dublin for €300,000 would be required to have €60,000 put aside, which would be really tough. It would be unachievable by many who are renting at a time when rents are increasing quickly and simply do not have the capacity to save such an amount of money. This has societal implications also. Persons from wealthy families that have access to resources and savings will be able to get around these rules. The Central Bank needs to take account of these points when it is finalising the formal proposal. Some level of deposit is good and should lead to more responsible lending, but we do not want to over-react to what has happened. A 20% minimum deposit requirement would be an over-reaction and have unintended consequences which would not necessarily be good for society.

Michael Noonan (Limerick City, Fine Gael)
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I am looking forward to the committee's consultation and its report on these matters. I do not think it is necessary for a mortgage insurance scheme to apply to the full life of a 25 year mortgage. It seems that if there was insurance for the first five years, things would be well settled thereafter. If someone has paid fully for five years, the likelihood of default thereafter will decrease in normal circumstances as their career moves on, they receive extra income and their family settles. It might not be necessary to have a 25 year insurance guarantee. I would like the committee to consider whether a starter guarantee would be appropriate.