The decision on the approval of a mortgage for a borrower is a commercial decision for the lending institution concerned. It is important that each lending institution is allowed to properly and independently assess the risks that it is considering when deciding whether to approve a loan.
The Central Bank of Ireland (CBI) has advised me that Chapter 5 of its Consumer Protection Code contains provisions relating to assessing suitability and affordability of credit, including for example, a provision which obliges lenders to carry out an assessment of affordability to ascertain the personal consumer's likely ability to repay the debt over the duration of the agreement. The affordability assessment must include, inter alia, a test on the basis of a 2% interest rate increase, at a minimum, above the interest rate offered to the personal consumer.
The Central Bank of Ireland does not comment on the commercial decisions or policies of regulated entities. However, the Central Bank (Supervision and Enforcement) Act 2013 was passed last year and enhances the Central Bank's regulatory powers, drawing on the lessons of the recent past. It strengthens the ability of the Central Bank to impose and supervise compliance with regulatory requirements and to undertake timely prudential interventions. The Act also provides the Central Bank with greater access to information and analysis and underpins the credible enforcement of Irish financial services legislation in line with international best practice.
My Department is committed, under the 'Construction 2020' strategy, to examine international best practice and develop proposals for additional models of mortgage financing in Ireland, to ensure sustainable levels of mortgage lending in the medium term, and report to the Cabinet Committee on Mortgage Arrears and Credit Availability in November 2014. In the first instance the concept of a mortgage insurance scheme will be examined. The objective of any scheme would be to ensure adequate availability of mortgage finance on affordable terms for new completions, particularly for 'First Time Buyers'. In doing so I would aim to provide the certainty needed to support greater levels of investment in new housing, with the associated benefits for the construction sector and ultimately for the consumer. Once this examination has been completed and presented to me I will consider the next steps.