Anne Rabbitte (Galway East, Fianna Fail) | Oireachtas source

I thank the Senator for raising this issue. I am taking this on behalf of the Minister for Finance as he is taking oral questions in the Dáil at present.

In February 2015, the Central Bank of Ireland, in line with its mandate to protect and safeguard financial stability, first put in place new macro-prudential measures for residential mortgage lending. 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.

These macro-prudential measures apply certain loan-to-value, LTV, and loan-to-income, LTI, restrictions to residential mortgage lending by financial institutions regulated by the Central Bank. At present, 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 residential property, as the Senator mentioned.

However, banks and other regulated lenders also have a limited flexibility to provide a mortgage loan in excess of the specified regulatory limits at their discretion. For example, in respect of first-time buyers, up to 5% of lending to such borrowers may exceed the LTV cap of 90%, while up to 20% of lending may exceed the LTI cap of 3.5 times the borrower's income. For second and subsequent buyers, up to 20% of lending to such borrowers may exceed the LTV cap of 80%, while up to 10% of lending may exceed the LTI cap of 3.5 times the borrower's income.

The Central Bank has indicated that these lending measures have contributed to an improvement in the credit quality of new mortgage loans by guarding against a return to lending at high LTI and LTV ratios, such as those observed in the past. The Central Bank is the macro prudential authority for Ireland and has the lead responsibility for safeguarding and protecting financial stability. This in addition to its responsibility for the prudential supervision of individual financial service firms and the protection of consumers. The power to make regulations for the proper and effective regulation of financial service providers, including macro prudential measures to control lending by such institutions, is provided for in the Central Bank Act of 2013 and that is the power utilised by the Central Bank to set out the mortgage lending rules. Therefore, the various lending thresholds and detailed aspects of the lending rules is an independent matter for the Central Bank.

Since their introduction, the Central Bank has kept the rules under regular review and has made a number of adjustments from time to time. However, the bank has come to the view that it is now time for a more comprehensive review of the mortgage measures framework to ensure the measures continue to remain fit for purpose in light of changes to our financial system and economy since they were first introduced. This comprehensive review is ongoing and will assess the objectives of the mortgage measures and whether they remain appropriate. The review will also consider the tools that are used and the factors taken into account when setting their levels. It is expected that the Central Bank will conclude its review before the end of this year. I will let the Senator come in and I will continue with my response later.