Terence Flanagan (Dublin North East, Independent)
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169. To ask the Minister for Finance his views on correspondence (details supplied) regarding lending; and if he will make a statement on the matter. [37982/14]

Michael Noonan (Limerick City, Fine Gael)
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I am advised by the Central Bank of Ireland that banks employ both Loan-to-Value (LTV) and Net Disposable Income (NDI) benchmarks as part of the initial assesment of mortgage loan applications. The LTV maximum tends to be at 90% and the mortgage to NDI no more than 35%.  In addition, banks require detailed income and expenditure disclosure which they examine carefully and then apply a stress test for changes to interest rates.

In assessing affordability of credit, the Consumer Protection Code requires lenders to, inter alia, carry out an assessment of affordability which must include the consumer's ability to afford a 2% interest rate increase above the interest rate offered.  Therefore, in line with Central Bank guidance, new lending decisions are primarily based on assessment of affordability rather than LTV.

From a prudential perspective, the European Systemic Risk Board (ESRB) has been leading the work in developing macro-prudential frameworks across the EU.  This is being done through its recommendations of 2011 (on national macro-prudential mandates) and 2013 (on the intermediate objectives and instruments of macro-prudential policy). In a recent publication, the ESRB identified loan-to-income and debt service-to-income caps as potential instruments in addressing excessive credit growth.

In addition, the Central Bank very recently published research which examines the use of limits on new lending at high loan-to-value (LTV) or loan-to-income (LTI) ratios as macro-prudential tools which can be used to make the financial system safer and less prone to crises. As the Deputy may be aware, the Governor of the Central Bank yesterday announced that the Central Bank intends to introduce some measures on the adoption of appropriate macro prudential tools in the context of the Irish mortgage market. These include proposed LTV and LTI measures, which will assist the regulator in maintaining and underpining financial stability.