Fine Gael Dublin MEP, Brian Hayes, today (Wednesday), set out a nine point plan as an alternative to the Central Bank of Ireland’s 20% mortgage deposit rules, saying we can’t dump on first – time buyers.
“Everybody welcomes the decision of the Central Bank to have a wide consultation process on preventing a future property bubble. The property bubble and burst, in both residential and commercial property, which this country experienced in the early years of this century did tremendous damage to banks, to personal and family finances as well as to government finances. Individuals, families and the wider economy are still dealing with legacy issues arising from the crash.
“It is in everybody’s interest that we never repeat the terrible mistakes which brought this country to its knees. Ideally average house prices should move in line with average wage levels and average inflation levels.
“I believe, however, there are a whole range of measures which can be introduced to prevent a future property bubble without dumping on first-time buyers.
“These measures include the following:
1 – The Central Bank can ban interest only mortgages.
2 – Access to mortgage finance should be a function of capacity to pay. There are a range of factors which should be considered when assessing capacity to pay. These include income, savings records, and current housing costs. If mortgage repayments exceed 35% of disposable income that should be a clear warning sign
3 – The Central Bank can put a restriction on mortgages exceeding 25 years in length.
4 – It can also put a percentage cap on the total loan book of a bank to residential and commercial property.
5 – New legislation could also be introduced to ban the use of a principal private residence or family home as collateral for any other loan. These are some of the measures which might be used to restrict credit supply and control demand.
6 – The NTMA this month launched a 15-year government bond. This bond could be used to price a 15-year fixed interest mortgage rate for first time buyers. This system works in the US, where mortgages are traditionally priced off government bonds at a slightly higher rate.
7 – Use the opportunity of the entry of the German State owned bank KFW onto the Irish stage to provide long-term fixed mortgage interest rates at a reasonable price. The state-owned bank KFW makes loans to other banks so that people can avail of cheap and long-term fixed rates.
8 – Apply the 20% deposit to those trading up or those buying buy to let.
9 – The Central Bank should be insisting that a very high percentage of future mortgages should be fixed interest mortgages with a minimum ten year fixed period.
“Average prices are now €350,000 in the Dublin area. Saving €70,000 is an impossible ask for many young people given current wage and rent levels. In fact Ulster Bank said recently that, had the 20% restriction applied in the last year, nearly 70% of those first time buyers wouldn’t have got a loan from them. The 20% deposit restriction will have unintended consequences which will help no one.
“The other issue that needs urgent attention from the Central Bank is the nature of the residential mortgages being issued. With international interest rates at historically low levels there is now a once in lifetime opportunity to change the provision of mortgage finance in this country to a more sustainable model. Long term fixed interest mortgages are of huge benefit to a well-functioning property market. At current rates it should be possible to provide 15 year fixed interest mortgages at 3.5% or less. Fixed interest mortgages provide certainty of repayment for the holder of the mortgage. They strengthen bank balance sheets by eliminating the risk attached to variable mortgages. Fixed interest mortgages would also be a very effective prophylactic against future property bubbles.
“Demanding a 20% deposit is a blunt instrument that discriminates against particular groups. Regulations should reflect the complexity of the market and be fair to all. I welcome a robust wide ranging debate on all aspects of mortgage finance. I believe the Central Bank should lead the debate. Mortgage finance is a critical element of housing policy. Before the Central Bank put their mortgage deposit rules in place, I hope some of these issues can be fully explored.”