Michael McGrath (Cork South Central, Fianna Fail)
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9. To ask the Minister for Finance his views on whether the new rules introduced by the Central Bank of Ireland requiring a 20% deposit for non-first time buyers will result in many homeowners finding it impossible to move on to a new home; and if he will make a statement on the matter. [4670/15]

Michael McGrath (Cork South Central, Fianna Fail)
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This question relates to the new mortgage rules introduced by the Central Bank recently and seeks the views of the Minister on their impact on, in particular, non-first time buyers who will now be subject to a 20% deposit requirement in, at least, 85% of cases.

What is the Minister's view of the impact of this onerous requirement on those seeking to trade up or move home by virtue of finding a job elsewhere or their family size growing? When will these rules take effect? Will they require the approval of the House or merely the laying of a statutory instrument before the House? Will the Minister clarify this procedural matter?

Michael Noonan (Limerick City, Fine Gael)
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Following a public consultation process, the Central Bank of Ireland announced its new macroprudential measures for residential mortgage lending. The regulations place certain limits on both loan-to-value, LTV, and loan-to-income, LTI, ratios for new mortgage lending. For non-first-time buyers, a mortgage will be limited to 80% of the value of a principal dwelling house. First-time buyers will be subject to a maximum mortgage LTV ratio of 90% on a property valued up to €220,000 and to an 80% LTV ratio on any excess value above that amount. Buy-to-let mortgages are subject to a limit of 70% LTV ratio. Principal dwelling loans will also be restricted to a maximum multiple of 3.5 times gross annual income.

It is important to note that there are several exemptions from these rules. For example, the principal home LTV ratio restriction will not apply to a borrower in negative equity who wishes to obtain a mortgage for a new home. Additionally, in the case of principal dwelling loans, lenders can exceed these thresholds in respect of up to 15% of loans advanced for such purposes. These regulations are a matter for the Central Bank, acting independently in its capacity as regulator of financial service providers and also in its lead role in ensuring overall banking and financial stability. It is considered these final measures adapted by the Central Bank will help to promote prudent and sustainable lending for housing purposes and contribute towards the achievement of the bank's overall macroprudential objectives. They will take effect as soon as the bank promulgates the regulations. My responsibility is to bring the promulgated regulations to the House by way of placing them in the Oireachtas Library. The House does not have any function in enacting them, either through primary or secondary legislation.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Minister for clarifying the matter. I do not have any difficulty with the loan-to-income ratios. It is a better measure of the affordability of a mortgage because it measures someone's capacity to service a mortgage on a monthly basis. The Central Bank has got that one right.

On the issue of the 15% wriggle room the banks have, what they have told me privately is that they will use it to look after their own customers. For a new mortgage customer or someone seeking to switch a mortgage, that wriggle room is unlikely to be available. The Central Bank has gone a long way towardsd addressing the concerns of first-time buyers. However, there will still be problems, particularly in Dublin where there is no property available for a first-time buyer for €220,000. There will be problems in other urban centres such as Cork, too.

The biggest issue thrown up by the new rules is for non-first-time buyers. For example, a home owner who wants to trade up or move home will require a deposit of €70,000 for a new mortgage on a property worth €350,000. If he or she has little or no equity in his or her existing property, I am sure the Minister will agree that is a tall order. These rules are very onerous for non-first-time buyers and they will ultimately have an impact on first-time buyers, too. If people are not in a position to trade up, the properties that should be available for first-time buyers may not come on the market. Does the Minister support the Central Bank’s rules in their entirety?

Michael Noonan (Limerick City, Fine Gael)
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First, the Central Bank is independent. It brought forward these macroprudential rules on lending for house purchases because it was aware of how the property bubble had crashed the economy previously. It was also aware of the inadequacy of Central Bank and Financial Regulator action at the time, which is well recited. One can see why the bank was anxious that there would be no repeat.

My views were reflected in the submission made by the Department of Finance during the consultative process, the outcome of which has been published. I hope they were influential in providing a little more space for first-time buyers. The LTV scale does not jump from 80% to 90% in one go. The figure of €220,000 applies at the 90% rate and the scale then begins to slide for properties above that threshold. Up to a house worth €1 million, one would not be down to an 80% LTV ratio. It would work out at a maximum mortgage of 82%. There is a long sliding scale before one arrives at the 80% LTV level. I hope it will work.

It must be remembered that issue this is subject to ongoing review by the Central Bank. It is the bank's announcement and fully within its rights to make it. Its job involves the macroprudential care of the economy.

Michael McGrath (Cork South Central, Fianna Fail)
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I welcome regulation as some rules are absolutely needed. I welcome their introduction. The debate is really about the detail.

The Central Bank has got it right largely for first-time buyers. On the sliding scale a first-time buyer buying a house worth €400,000 will be required to come up with a 15% deposit, which is a lot. In Dublin many properties for first-time buyers will be in that region. However, there is a real issue for non-first-time buyers. It will have an impact on the market and, more importantly, a negative impact on the families affected. They may not be in negative equity but have modest positive equity in their properties. In such cases, the full rules apply concerning a 20% deposit. A couple with young children, for example, living in a duplex apartment or a small home may need to trade up to a house worth €350,000. They may be able to service the larger mortgage on this property but may not have the 20% mortgage deposit, namely, €70,000 cash, after they have sold their existing property. To me, that is very onerous and will result in many people being trapped, but we will see how it works out. I hope I am wrong. It is welcome that the issue will be kept under review because the Central Bank has gone too far on the deposit requirement for non-first-time buyers. I do not have a difficulty with the loan-to-income ratio, as it is a good measure of affordability, which is a more important benchmark to test somebody's capacity to service a mortgage.

Michael Noonan (Limerick City, Fine Gael)
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I am familiar with the arguments the Deputy has made, arguments that he has put very well. On the issue of how it will affect the market, it is designed to have an effect on it. There would be no point to it if it did not have an effect on it.

Michael McGrath (Cork South Central, Fianna Fail)
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The Central Bank has claimed it has nothing to do with it.

Michael Noonan (Limerick City, Fine Gael)
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The overall purpose of the rules is to prevent another housing bubble from emerging, if one believes that is a risk. We hope they will have an effect on the market.