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House Prices

Dáil Éireann Debate, Tuesday - 4 April 2017

Tuesday, 4 April 2017

Questions (201)

Clare Daly

Question:

201. Deputy Clare Daly asked the Minister for Finance if he will review recent measures, including the introduction of the help to buy tax scheme and the relaxation of the Central Bank's lending rules, in view of the fact that since those measures were taken there has been a 3.9% increase in house prices in Dublin (details supplied); and if he will make a statement on the matter. [16441/17]

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Written answers

As the Deputy will be aware, the Help to Buy incentive was initially announced on 19 July 2016 as part of 'Rebuilding Ireland: Action Plan for Housing and Homelessness'. This plan contains a significant volume of responses to the current housing crisis, of which the Help to Buy incentive is one. This comprehensive Action Plan takes a holistic approach in addressing the many interacting structural constraints affecting the housing market in areas such as planning and land use, as well as regulation and skills deficits in the construction sector. While the primary focus of the Action Plan is to tackle structural constraints, fiscal supports can play a supporting and time-bound role in addressing the current problems in the housing sector.

It is in this context that the Help to Buy incentive should be considered. Its role is to complement the other measures in the Action Plan. The extent to which the scheme could lead to an increase in residential property prices will very much depend on the speed and efficiency with which structural supply constraints are eliminated and residential building activity increases. Therefore, the impact of the Help to Buy incentive on property prices cannot be considered in isolation from the impact of other measures contained in the Action Plan, which are primarily designed to increase supply.

Regarding the Central Bank's macro-prudential rules, these were initially introduced for residential mortgage lending by financial institutions regulated by the Central Bank in February 2015, as part of its independent mandate to preserve and protect financial stability in Ireland. These macro-prudential measures apply certain loan-to-value (LTV) and loan-to-income (LTI) restrictions to residential mortgage lending.

Following a review carried out last year, the Central Bank has made some limited adjustments to these rules which came into effect on 1 January 2017. The main change related to first-time buyers and provided that the maximum LTV of 90% would now apply to the total value of the of the property (previously the 90 per cent limit was up to the first €220,000 value of the property and an 80 per cent LTV limit applied to any value above that threshold). The maximum LTV mortgage limit for second and subsequent buyers of a primary home remained unchanged at 80 per cent of the value of the property, as did the LTI threshold limit of 3.5 times gross annual income. These macro-prudential rules, however, do not remove the requirement on lenders to carry out appropriate credit worthiness assessments on all mortgage applications in line with the Consumer Protection Code and other consumer protection regulatory requirements. The Central Bank is independent in these matters.

I wish to assure the Deputy that my Department continues to monitor developments in the property market including property prices on an ongoing basis. I have already committed to commissioning an independent economic impact assessment of the Help to Buy incentive which will look at, among other issues, the impact on property prices. However, it should be remembered that the high rates of house prices reflect the supply constrained nature of the Irish residential market, and price increases were a feature of the market long before the Help to Buy incentive was introduced.

In addition, the Help to Buy incentive has been introduced for two reasons - to assist first time buyers in putting together the requisite deposit to buy a home, and to encourage the construction of new homes. As such, I am not in a position to consider changes to the scheme so soon after implementing the Help to Buy incentive, as this would disrupt the incentive effect which is designed to create the conditions to encourage the construction of new homes.

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