Michael McGrath (Cork South Central, Fianna Fail)
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1. To ask the Minister for Finance if he has asked the Central Bank of Ireland to carry out a review of residential mortgage lending rules; his views on the apparent inability of first-time buyers to obtain a mortgage, despite evidence of repayment capacity; if he aware of the difficulties of families seeking to trade up to a property more suited to their circumstances; and if he will make a statement on the matter. [40509/15]

Michael McGrath (Cork South Central, Fianna Fail)
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I raise with the Minister the new Central Bank rules on deposits for mortgages. In particular, I want to ask him if he has asked the Central Bank to review the operation and impact of these macro-prudential rules which are undoubtedly having a significant impact on the ability of first-time buyers to purchase a home and of many families who are currently in an unsuitable dwelling or apartment to trade up because they are now subject to the full 20% rule. Both the Minister for Finance and the Minister for the Environment, Community and Local Government, Deputy Kelly, have made adverse comments on these rules and I would like to know if the Minister has requested the Central Bank to conduct a review of these new mortgage deposit rules.

Michael Noonan (Limerick City, Fine Gael)
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The Central Bank of Ireland, in line with its mandate to safeguard financial stability, has put in place new macro-prudential measures for residential mortgage lending effective from last February. These measures apply proportionate loan-to-value and loan-to-income limits to mortgage lending by regulated financial service providers in the Irish market. The key objective of these measures is to increase the resilience of the banking and household sectors to the property market and to reduce the risk of bank credit and house price spirals from developing in the future. This is of particular significance for Ireland given that mortgage lending constitutes a large part of overall bank lending.

In its submission to the public consultation process undertaken by the Central Bank on its proposals last year, my Department recognised that there was a sound rationale for the introduction of macro-prudential measures in Ireland but also indicated that it would be appropriate to keep the particular measures as adopted under review from time to time. Certain other issues such as the particular position of first-time buyers were also referenced. While the Central Bank is independent in the setting of such macro prudential measures, these points were recognised by the bank. As the Deputy will be aware, the Central Bank allowed a higher loan to value threshold of 90% for first-time buyers of properties valued up to €220,000 and it also indicated that it would monitor the impact of the implemented measures on an ongoing basis, in particular with regard to achieving the stated objectives of the measures and monitoring any unintended consequences.

At official level, my Department and the Central Bank have a close working relationship on all areas of mutual interest, including that of macro-prudential policy. In addition, I maintained close contact with the outgoing Governor and I look forward to also liaising closely with the incoming Governor. I fully respect the independence of the Central Bank to set macro-prudential policy in the best interest of overall financial stability. The Central Bank has indicated that it is actively monitoring the impact of the new measures on an ongoing basis.

Michael McGrath (Cork South Central, Fianna Fail)
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Just to be clear, I also fully respect the independence of the Central Bank but that does not take from my right as a public representative to take a view on these measures. In reality, the Department of Finance is in very close contact on a day-to-day basis with the Central Bank. I am not advocating in any sense a return to the type of lending we had in the past. I believe there should be a minimum deposit requirement and that around 10% is appropriate. I also believe that mortgage applications should be very stringently stress tested and the capacity to repay the loan should be the primary determinant of whether a mortgage is sanctioned. That said, the Minister cannot take away from the fact that these measures will have a very significant social impact. Home ownership levels are certainly going to fall. These rules have put home ownership beyond the reach of many, despite their ability to repay a mortgage. People who are paying enormous rents at the moment cannot save and simply will not be able to get a mortgage. Equally, we have thousands of families now trapped in apartments and other unsuitable accommodation from which they need to move. They will require a full 20% deposit in respect of the purchase price of any new home.

Reading between the lines, it seems the Minister is not very happy with these rules but he has not done anything about it as far as I can see. Is he satisfied with these rules being in place and with the fact the Central Bank says it is actively monitoring their effect? Does he intend to go further and does he have the power to seek a formal review of these rules and their impact?

Michael Noonan (Limerick City, Fine Gael)
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Deputy McGrath's allegation that I am not going to do anything about it suggests that he does not fully understand the statutory position of the Central Bank-----

Michael McGrath (Cork South Central, Fianna Fail)
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I do.

Michael Noonan (Limerick City, Fine Gael)
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-----and that it is independent in the exercise of its functions.

These rules were introduced last February and only apply to mortgages that were sought and approved since then, so there is a limited amount of data available. The bank usually reviews these things on an ongoing basis. It is not a question of one review. It monitors the data to determine the effect of measures such as these.

Recent data published by the Banking and Payments Federation Ireland indicate that residential mortgage lending in the nine months to the end of September amounted to €3.4 billion, which was 35% higher than the same period last year. The data also show that the value of drawdowns by first-time buyers in the third quarter was at its highest level this year. The data coming through do not suggest that the macro-prudential rules have stopped the flow of mortgages. The value of mortgages since the rules were introduced has actually risen by 35% and the third quarter of this year was the strongest quarter for the issuing of mortgages.

I would expect the Central Bank to monitor the data on an ongoing basis and we will see where they land. These things are very difficult because there are risks on both sides, as the Deputy pointed out. The Central Bank has the statutory authority to deal with this.

Michael McGrath (Cork South Central, Fianna Fail)
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While the data indicate that mortgage lending is picking up, it is coming from a position where it had collapsed completely. As the Minister has also pointed out on many occasions, percentage based statistics can be very misleading.

The level of mortgage lending is exceptionally low. From my daily dealings with constituents, it is clear that their ability to access a mortgage has been severely hampered. The recent changes introduced by the Central Bank are a form of social engineering which will place home ownership beyond the reach of thousands of families. Perhaps this is a strategy or vision for the future. People who have married or had a couple of children since moving into an apartment and wish to move into a more suitable home are trapped because they will not be able to meet the new requirements. The Central Bank has provided limited leeway for the banks to extend mortgages outside the rules but feedback suggests this leeway has been exhausted and that the banks are not in a position to lend new mortgages outside the strict rules in place. I ask the Minister to acknowledge that the Central Bank's rules for mortgage lending are having an impact. As far as I can discern, its primary motivation has been to protect the banks and give them an additional buffer in the event of property prices falling, loans entering arrears and repossessions taking place. While the new rules protect the balance sheets of the banks, they are not in the interests of ordinary people who have a legitimate aspiration to own their own home.

Michael Noonan (Limerick City, Fine Gael)
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Again, I thank the Deputy for his intervention. The 35% increase in mortgage lending to date this year is not only a big increase from a low base, as I indicated, at €3.4 billion, it also amounts to a good wedge of money going into mortgages. If the figure is increasing at a rate of more than 30%, it will, over a few years, return to a significant amount.

The Deputy ascribes all sorts of motive to the Central Bank. The Central Bank has placed on record the reasons for its decision to introduce new lending rules. Housing prices, particularly in Dublin, were escalating rapidly at the time and the position looked a little scary just after Christmas last year.

Michael McGrath (Cork South Central, Fianna Fail)
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The problem is a lack of supply.

Michael Noonan (Limerick City, Fine Gael)
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There was also considerable commentary in the newspapers suggesting we were heading straight back to a housing spiral, which would result in inflated housing prices, more people being in negative equity and another bust.

Michael McGrath (Cork South Central, Fianna Fail)
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Homes are not being built.

Michael Noonan (Limerick City, Fine Gael)
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"Housing bubble" is the phrase that is usually used in this context. Whether the Central Bank was right or wrong, there is no argument about the reasons it intervened. It did so because it feared another housing bubble which would lead to an economic collapse. My position is that it constantly collects data and is engaged in an ongoing review of the matter. If it believes the rules need to be modulated, I am sure it will act. However, the rules have not yet been in place for 12 months and a period of at least 12 months is needed to determine the effects of the measures.