Thursday, 22 September 2022
Nithe i dtosach suíonna - Commencement Matters
I thank the Minister of State for coming to the Chamber this morning.
I absolutely recognise the need for lending control and guidelines from the Central Bank on the importance of that lending control. We all learned an important and very hard-learned lesson over a decade ago when exactly the kind of lending we are trying to prevent allowed things to get out of control and create huge economic problems. In raising this matter, I am in no way seeking to undermine the importance of those measures or many of the tenets of those measures.
People will be aware that the measures I am talking about are essentially the guidelines the Central Bank issues to lenders on the extent to which borrowers can obtain mortgages. That is specifically what I want to focus on. Most people cannot get a mortgage for more than 80% of the value of the property being bought, which means one must have a deposit of 20% available to one. That is the case for the vast majority of people who are second or subsequent buyers of a house, apartment or other property. A small number of people qualify under what are called the first-time buyer criteria. They are allowed to borrow up to 90% of the value of the property. They are required to garner a deposit of only 10%. Let us be in no doubt but that this is still a challenge for many, which is understandable. In fact, I understand from my own circumstances how difficult it can be.
That the guidelines are in place is important but the manner in which they are applied is a little inconsistent. I agree with the 20% provision. It exists to ensure people will have the capacity to repay their loans and not end up in default or losing their homes, which, in fairness, is uncommon in this country. Banks complain about this but I believe the measure is important.
In the constituency where I live, Dún Laoghaire, the average price of a home is over €500,000. Therefore, a person who has bought a one-bedroom apartment and who now needs to move out because he or she has a family must gather a deposit of over €100,000. For most, that is absolutely unattainable, certainly in the medium term. It is an amount that you might be able to save over a decade or similar period. However, to obtain that amount to get a mortgage is really difficult. That is as may be, but there is an inconsistency affecting people who have to start again for some reason. Where a relationship breaks down and one partner has to leave the family home, which might have been purchased 15 years ago, for example, the person leaving the home, who has to set up again, still has to find a 20% deposit. Even though such people are not first-time buyers, there is a basis on which we should be saying they should qualify under the first-time buyer criteria. Equally, where only one member of a couple owns the one-bedroom apartment in which they live, the other member is denied the opportunity to be a first-time buyer if they decide to buy a family home together.
This may be a busy week for officials working in the Department of Finance but I suggest that as we consider the crisis facing young people buying homes in Ireland today, we should be flexible in applying the lending rules, where appropriate. Very often, there are people who cannot buy homes or afford to get a mortgage, with all the difficulties that come with that. Even though they are not technically regarded as first-time buyers under the criteria, they should still qualify. That they do not is a major obstacle for them. I ask the Department to consider the guidelines, work with the Central Bank and state that while first-time buyers are first-time buyers, there are other categories of people, including those who have to start again and those whose relationships may have broken down, who should also be considered. Someone in a relationship with a first-time buyer should not be discommoded by the status of that person.We should consider having some flexibility of those limits to allow greater access to the mortgage market for some buyers.
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.
I totally understand the week before the budget is not a good time for officials or Ministers in the Department of Finance, therefore, I have no difficulty with the fact that the Minister could not be here.
I recognise what the Central Bank said about the improvement in the credit quality of new mortgage loans by guarding against a return to lending at high loan-to-income and loan-to-value rates, such as those observed in the past. I recognised the importance of the limits and the Minister of State kindly acknowledged that as well. I do not have an issue with the LTI provisions. What I am saying is that the 20% deposit is insurmountable for many people. I am delighted about the decision of the Central Bank to do a more comprehensive review of this. While the bank is right that it has led to an improvement in credit standards and quality, it has also led to a situation where many young people, those coming out of relationships that have broken down, find it incredibly difficult if not impossible to obtain a mortgage for a home, be it a first or a second home.
In raising this matter in the House - I think the Minister of State has acknowledged this and the Central Bank is probably aware of it, to one extent or another - I am asking for great flexibility and that people in certain categories should not be locked out of the mortgage market as they are de facto at present. I hope the Central Bank review, which it will conduct in a comprehensive fashion, will bring about a change of mind in respect of some lenders.
I must acknowledge the comprehensive response provided by the Department of Finance. It shows the flexibility and willingness of the Central Bank to engage and its openness, through the consultation period and the review, in recognition of changes in circumstances and different needs of people as well as the make-up of families. I will take that back to the Minister and I thank the Senator for raising this matter.