Bernard Durkan (Kildare North, Fine Gael)
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Question 289: To ask the Minister for Finance if he is satisfied that the lending institutions are not contributing to inflation in the housing market; and if he will make a statement on the matter. [19678/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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House price inflation has been accelerating since September 2005. According to the ESRI Permanent TSB house price index, the year on year growth rate increased from 6.2% year on year to September to 12.1% year on year to March 2006. The Financial Regulator has already drawn attention to the need for lenders to act prudently in extending credit, especially for house purchase, and for borrowers to carefully consider their ability to service borrowings. The Regulator recently introduced a technical prudential measure requiring financial institutions to put more capital aside for higher "Loan to Value" loans. This measure reinforces the message consistently conveyed to lending institutions by the Financial Regulator that mortgage lending policies and practices should be prudent and responsible. The Financial Regulator's proposal is informed by trends and developments in the mortgage market, for example, the introduction and growth of 100% mortgages. The action is strictly of a precautionary prudential nature.

In the case of housing loans, mortgage providers are specifically obliged under the Consumer Credit Act 1995 to inform borrowers of the effect on the amount of their repayment instalments of a 1% increase in interest rates in the first year of their mortgages. A number of specific initiatives have been developed to help consumers make informed choices in terms of the financial products they choose, the amount of risk they take on and the cost of financial products. Mortgage lending practices are closely supervised by the Financial Regulator and the Central Bank who require lenders to conduct appropriate stress testing of borrowers' ability to meet their obligations, not just in the current economically favourable circumstances, but also in more challenging times.