Research shows strong support for loosening of Central Bank’s mortgage lending rules

Independent research by bonkers.ie and RED C has revealed strong support among Irish people for a loosening of the Central Bank’s mortgage lending rules to make it easier for people to get a mortgage.

The Central Bank’s mortgage lending rules were introduced in early 2015 and limit mortgage seekers to borrowing 3.5 times their income. They also require that first-time buyers have at least a 10% deposit, increasing to 20% for second-time buyers or movers. 

However a limited number of exceptions to the rules are allowed each year. 

The rules were brought in to ensure financial institutions lend more sensibly and to avoid a repeat of the reckless lending that led to the 2008 financial crash. 

However it would seem the public want to see the measures relaxed.

The research 

The research, which surveyed a nationally representative sample of just over 1,000 adults in the Republic of Ireland in November, showed that 64% of people say they are in favour of mortgage seekers being allowed to borrow more than 3.5 times their income, provided they can demonstrate their ability to repay.

This compares to 18% who say they are against allowing people borrow more. 

A further 13% said they neither agreed nor disagreed while 5% expressed no opinion.

At 70%, those aged between 35 and 44 were most likely to say that the Central Bank’s loan-to-income rule should be relaxed.  

The research also showed strong support for a lessening of the deposit requirement. 

53% of people agree that the minimum deposit requirement of 10% for first-time buyers is too high, and should be lowered.

This compares to 27% who disagree with any change to the measure. 

In a separate question, 41% of people said there should be no deposit requirement at all, provided mortgage seekers can demonstrate the ability to repay their mortgage.

Here's a look at the questions in detail...

People should be allowed to borrow more than 3.5 times their annual income provided they can demonstrate the ability to repay.

 The minimum deposit requirement of 10% is too high, and should be lowered.

I don't believe people should have to provide any deposit, if they can demonstrate an ability to repay their mortgage.

Review of mortgage lending rules 

Last week the Central Bank announced that its mortgage lending rules are to remain the same for at least another year.  

However the regulator is currently undertaking a more in-depth review of the rules and invited online feedback from the public and interested parties earlier this year. This feedback will help inform the Central Bank’s decision on whether the rules should be tweaked more substantially going forward. And a decision is expected around this time next year.

Central Bank under pressure 

The Central Bank has come under increasing pressure to loosen its mortgage rules over the past few years, from both banks and even the Government. And now it would appear the public wants change too. 

Or course no one wants a return to the reckless lending of the past.

However the current rules, while well-intentioned, would appear to be helping contribute to a dysfunctional housing market as in almost every area of the country it is more expensive to rent a property than it is to buy - which should never be the case - as people can’t get a mortgage of sufficient size or save up the deposit.

However, we need to be careful about what we wish for.

Given the limited supply of housing at the moment, any loosening of credit rules without a corresponding increase in the level of housing output, could simply lead to an increase in property prices, leaving prospective home buyers in no better a position.

Having said that, the current loan-to-income rule in particular seems somewhat crude and doesn’t fully take into account different people’s ability to repay.

A rule based on the size of the mortgage repayment as a percentage of someone's net disposable income has long been suggested by banks and brokers as a better metric to use.

Compare mortgage rates on bonkers.ie

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Take a look at our mortgage guides

If you’re looking to get your foot on the property ladder but are seeking more information, take a look at our helpful mortgage guides. You might be interested in the following:

• You can learn all about the different types of mortgage interest rates in this guide.
• Unsure about whether to opt for a variable or fixed rate? We discuss the pros and cons of both in this guide so that you can make a well-informed decision.
• To learn about how your mortgage application will be assessed, take a look at this guide.

You can easily stay up to date with all the latest mortgage news and top tips with our blogs and guides pages.

Let’s hear from you

Do you think that the Central Bank’s mortgage lending rules need to be reviewed and eased? We’d love to hear your thoughts in the comments below. You can also get in touch with us on Facebook, Twitter and Instagram.