Written answers

Tuesday, 31 May 2016

Department of Finance

Programme for Government Implementation

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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249. To ask the Minister for Finance to expand on the programme for Government commitment to introduce a help-to-buy scheme or mortgage insurance scheme; and if he will make a statement on the matter. [13210/16]

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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250. To ask the Minister for Finance if the proposed help-to-buy scheme or mortgage insurance scheme will be a State-backed scheme or draw upon private insurers or investors; and if he will make a statement on the matter. [13211/16]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 249 and 250 together.

Primary responsibility for the broad scope of housing policy is a matter for my colleague Simon Coveney TD, Minister for Housing, Planning and Local Government.  He is developing an Action Plan for Housing and, having regard to the number of Departments and agencies which will have an involvement in that plan, its formulation and implementation will be overseen by An Taoiseach and the new Government Committee on Housing. 

As indicated in the Programme for a Partnership Government (PfPG), this Action Plan will be a collaborative process and will draw on the work of the Oireachtas Committee on Housing and Homelessness as well as the actions laid out in the PfPG itself.  It is recognised in the PfPG that some first time buyers may face difficulties in accessing mortgage finance to purchase a house and to that end the PfPG, as one of the range of measures in the area of housing, commits the Government to work with the Central Bank, as part of its up-coming review of its mortgage lending limits, to develop a new "Help to Buy" scheme to ensure availability of adequate, affordable mortgage finance or mortgage insurance for first time buyers as new housing output comes on-stream.  

Both the Oireachtas Joint Committee on Finance, Public Expenditure and Reform (during the term of the previous Dáil) and the Central Bank of Ireland (in its 2014 consultation process on the then proposed macro prudential measures for residential mortgage lending) considered the issue of mortgage insurance in an Irish context.  However, the Central Bank, which is independent in the formulation of macro prudential policy, ultimately concluded that it did not consider that an exemption from the loan to value (LTV) macro prudential measures for insured mortgages to be an effective practical measure at that time.  Instead, the Bank concluded that the issue of access to mortgage finance by credit worthy first time buyers (FTBs) was better addressed by the introduction of a higher LTV cap for lower valued properties.  Accordingly, the Central Bank ultimately provided for a 90% LTV threshold for FTBs in respect of the value of a property up to €220,000 and this is higher than the 80% LTV threshold which applies to all other primary home mortgage lending (and to the 70% LTV threshold which applies to buy to let residential mortgages). Of course, these are proportionate thresholds and individual banks have a certain flexibility to provide a limited amount of lending at higher LTV thresholds subject to also meeting consumer protection requirements and having satisfying themselves that the consumer borrower is likely to be in a position to meet the obligations of the credit agreement.     

As the Deputy is aware, the Central Bank will carry out a review of the current macro prudential rules later this year with publication expected in November.  To that end, the Bank has indicated that the existing rules can be recalibrated if the evidence suggests that such an adjustment would be warranted.  

However, an overriding primary policy objective in the area of housing is to deliver affordable and sustainable housing and credit markets over the course of the economic cycle and to avoid the boom and bust cycles which we have experienced in the past.  The macro prudential policy framework put in place by the Central Bank is intended to help achieve that objective.  From a financial stability perspective, mortgage insurance needs to effectively transfer risk away from the banking system and from the State in a cost effective way (and to do so without giving rise to stability concerns elsewhere in the financial system) while also operating in the best interest of consumers.  Due to this imperative to effectively transfer risk, I would not see a role for the State in underwriting, or guaranteeing the provision of, mortgage default insurance in relation to high LTV residential mortgages.

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