Michael McGrath (Cork South Central, Fianna Fail)
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I propose to take Questions Nos. 220 and 221 together.

The Central Bank of Ireland, as part of its independent mandate to preserve and protect financial stability, has statutory responsibility for the regulation of residential mortgage lending by banks and other Central Bank regulated mortgage lending institutions.

In line with this financial stability mandate, the Central Bank has introduced macroprudential measures which apply to certain loan-to-value and loan-to-income restrictions to residential mortgage lending by Central Bank regulated entities.

The current regulations provide that the maximum loan for primary residential buyers shall be 90% of the value of the secured property, and four times gross income for first time buyers and 3.5 times gross income for second and subsequent buyers. However, lenders also have flexibility to lend a certain amount above these limits based on their own commercial discretion.

From an affordability perspective, before providing a mortgage lenders are also required to undertake thorough creditworthiness assessments to ensure a borrower will be able to repay the mortgage. This assessment must take into account the individual circumstances of the borrower, including the borrower's personal income and expenses, and as such, where applicable, lenders are in a position to take account of a mortgage applicants' rental payments when making their affordability assessment as part of regular underwriting process to assess borrowers’ ability to repay a mortgage.

More broadly, a mortgage is likely to be the largest liability that most households will take on in their lifetime. It comes with less flexibility than a rental contract and therefore leaves borrowers more exposed to shocks to incomes, house prices and interest rates in the future The requirement for a deposit, therefore, is a crucial element of sustainable lending standards as it provides a buffer against the effects of house price falls which could push borrowers into negative equity.

Negative equity can have a series of adverse impacts on households, such as the capacity to switch mortgage or to move home in light of changing personal or financial circumstances. From the lenders’ perspective, losses on mortgages are predominantly experienced when negative equity prevails.

The Central Bank expects all regulated firms to take a consumer-focused approach and to act in their customers’ best interests at all times. However, within the parameters of the regulatory framework, the decision to grant or refuse an individual application for mortgage credit is a commercial decision for an individual lender.

If a loan applicant is not satisfied with how a regulated entity is dealing with them, or they believe that the regulated entity is not following the requirements of the Central Bank’s codes and regulations or other financial services law, they should make a complaint directly to the regulated entity. If they are not satisfied with the response they receive from the regulated entity, the response to their complaint from the regulated entity is required to include details for the borrower on how to refer their complaint to the Financial Services and Pensions Ombudsman.

From a general regulatory perspective, the Central Bank has indicated that the macroprudential mortgage lending measures are a permanent feature of the housing and mortgage market and, as they are driven mainly by structural forces, it does not envisage regular changes to the future calibration of the measures.

The Central Bank’s most recent mortgage measures framework review, which concluded in 2022, reaffirmed the benefits of the measures which have strengthened the resilience of borrowers, lenders and the economy overall and thereby in a better position to withstand adverse shocks which may arise in the future.