Written Answers Nos. 58-72
58. Deputy Éamon Ó Cuív asked the Minister for Transport the reason persons who missed their NCT appointments due to the lockdown in the past year, particularly persons over 70 years of age are being penalised if they go for an NCT now; if the NRA will waive any penalties and agree to issue the NCT certificate for the full relevant period, depending on the age of the car; and if he will make a statement on the matter. [18036/21]
View answerWhile it is not possible for me to comment on individual circumstances, I would firstly seek to clarify to the Deputy that all Member States of the European Union are required by law to carry out a periodic roadworthiness inspections on motor vehicles at regular intervals throughout the vehicle's lifecycle. This is an essential safety check and an important road safety measure that provides for a reduction in road accidents by detecting defects such as faulty brakes, worn tyres or defective headlights.
The applicable dates for periodic testing and voluntary testing is provided for by national legislation. Under Regulation 3(2) and 3(3) of the Road Traffic (National Car Test) Regulations 2017 (S.I. No. 415/2017), the initial test due date for a vehicle is determined using the date of registration of that vehicle and subsequent test due dates fall on anniversaries of that date. Accordingly, all test due dates are predetermined based on the date of registration of a vehicle. It is important to note that the NCT certificate relates only to the condition of testable items at the time of the test and does not constitute a warranty for their condition for the subsequent 12-month period. Any NCT certificate issued in respect of a vehicle is only valid up to the test due date that falls after that certificate was issued.
There are no current plans to amend this legislation in respect of test due dates.
I of course believe that safeguarding public health is of paramount importance at this time. I am advised by the RSA that the NCT Service has put in place a broad range of measures to ensure that they are compliant with health and safety guidelines and public health advice, including restricting the use of waiting rooms, and that this is notified to customers via the NCT website. I am also given to understand that the NCT Service has requested that elderly or vulnerable customers do not attend in person but instead arrange for someone to present their vehicle in their stead, where possible. Information about the protocols which have been put in place is available from the NCTS website https://www.ncts.ie/1123/
It is also possible to call the NCTS booking number on 01-4135992 and speak to one of their representatives.
59. Deputy Patricia Ryan asked the Minister for Finance his views on whether the Covid restrictions support scheme is biased against rural-based businesses; the action he will take to rectify this; and if he will make a statement on the matter. [17745/21]
View answerThe CRSS is a targeted support for businesses significantly impacted by restrictions introduced by the Government under public health regulations to combat the effects of the Covid-19 pandemic. Details of the CRSS are set out in Finance Act 2020 and detailed operational guidelines, which are based on the terms and conditions of the scheme as set out in the legislation, have been published on the Revenue website.
To qualify under the scheme, a business must carry on a trade or trading activities, the profits from which are chargeable to tax under Case I of Schedule D. The trade must be carried on from a business premises that is located in a region subject to restrictions introduced in line with the Government’s ‘Living with Covid-19 Plan’, with the result that the business is required to prohibit or significantly restrict customers from accessing its business premises.
To make a claim under the CRSS, a business must be able to demonstrate that, because of the Covid restrictions, the turnover of the business in the period for which the restrictions are in operation, and for which a claim is made, will be no more than 25% of an amount equal to the average weekly turnover of the business in 2019 (or average weekly turnover in 2020 in the case of a new business) multiplied by the number of weeks in the period for which a claim is made.
An eligible business can make a claim under the CRSS for a cash payment known as an “Advance Credit for Trading Expenses”. The cash payment will enable an eligible business to meet costs associated with its business premises, such as rent, insurance and utilities, at a time when, because of the specific terms of the Covid restrictions, it cannot, for a period of time, provide goods or services to customers or can only do so to a limited extent. The cash payment will be equal to 10% of the average weekly turnover of the business in 2019 up to €20,000 and 5% thereafter, subject to a maximum weekly payment of €5,000, for each week that the business is affected by the Covid restrictions. For a business established between 26 December 2019 and 12 October 2020, the claim will be based on the average weekly turnover of the business in the period between the date of commencement and 12 October 2020 (subject to a maximum weekly payment of €5,000).
The amount to which a business is entitled under the CRSS is based on turnover of the business rather than where the business is located, subject to the requirement that the business is located in a geographical region for which Covid restrictions are in operation. All parts of the country are subject to the same level of Covid restrictions under current public health regulations.
Revenue has published detailed statistics on the main COVID-19 subsidy schemes since late March 2020, including the Temporary Wage Subsidy Scheme (TWSS), the Employment Wage Subsidy Scheme (EWSS) and the Covid Restrictions Support Scheme (CRSS). These statistics are available on the Revenue website and are updated on a weekly basis at this link: https://www.revenue.ie/en/corporate/information-about-revenue/statistics/number-of-taxpayers-and-returns/covid-19-support-schemes-statistics.aspx.
The county breakdown shows that businesses from all counties are availing of the scheme and less than one quarter of the premises receiving CRSS support are based in Dublin.
60. Deputy Bernard J. Durkan asked the Minister for Finance the status of specific economic interventions that might be needed in the economy if and when Covid-19 is brought under control; and if he will make a statement on the matter. [17639/21]
View answerWe are in a period of unprecedented uncertainty. Our current focus is on maintaining existing supports and ensuring that they continue to support those most impacted by the Covid-19 pandemic.
The Government has introduced a number of schemes to support individuals and businesses who have been impacted by the pandemic. Of the three primary schemes, the Pandemic Unemployment Payment has paid out nearly €7 billion to individuals who have lost their jobs, the two Wage Subsidy Schemes have provided support of over €5 billion to impacted businesses, and the most recent measure, the Covid Restrictions Support Scheme, has paid over €400 million in direct support to firms that have had to close due to public health restrictions.
The public finances can absorb this shock. Letting debt rise on a one-off basis in order to provide support to the economy is the appropriate budgetary response. When the public health situation allows, it is my expectation that economic growth will play the most significant role in boosting taxes and restoring the public finances to a sustainable setting.
Once the pandemic has passed and the temporary measures unwound, we will have a better understanding of the economic and fiscal situation and whether any further more targeted interventions might be needed.
61. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he remains satisfied regarding the adequacy of actions to date to combat the economic impact of Brexit; and if he will make a statement on the matter. [17640/21]
View answerThe new Trade and Cooperation Agreement between the EU and UK is a positive conclusion to the transition period. However, the new agreement still represents a break from previously existing arrangements, and thus a permanent shock to the Irish economy. Therefore, Brexit will still have a negative economic impact on the Irish economy and living standards compared to the previous relationship.
For Irish exporters, the Trade and Cooperation Agreement is positive, compared to a no-deal scenario, as it will provide for zero-tariffs and zero-quota trade for qualifying EU and UK goods. However, it is important to note that the agreement does not completely mitigate against trade frictions in the form of non-tariff barriers, such as customs checks and procedures. So, while tariffs and quotas have been avoided for qualifying goods, non-tariff measures or non-tariff barriers represent a change in trading relations and an increased cost to trade. In addition, disturbances to retail and distribution supply chains could have a direct impact on Irish consumers through reduced competition and higher prices. Further import controls will be introduced by the UK, on a phased basis from October 2021, on certain categories of EU goods, including plant and animal products.
The Government has put in place extensive financial supports for sectors over recent years to assist businesses prepare for and mitigate the impacts of Brexit, including various financial, advisory, and upskilling supports. The Government has also invested heavily in our port infrastructure, as well as working closely with businesses to navigate the new customs arrangements. A range of Government support is available to Irish exporters, including training and grants, to help businesses deal with these changes. It is vital that business prepare for the further changes which will arise over the coming months due to the UK’s new import controls.
The successful negotiation of the Protocol on Ireland / Northern Ireland, as part of the Withdrawal Agreement, delivered key economic objectives for Ireland. The Protocol secures Ireland’s place within the Single Market, avoids a hard border on the island, protects the all-island economy, and provides Northern Ireland with unique access to both the British internal market and the EU single market.
In the weeks since the end of the transition period on 31 December 2020, a level of trade friction has been evident. Given the phased basis of the new import controls which are being applied by the UK, it will take time for these to feed through to overall exporting activity, and to assess any associated economic impact.
The Government remains focused on protecting our economic and financial interests, and will continue to work to minimise the disruption that Brexit will have on the economy and peoples’ livelihoods to the greatest extent possible.
62. Deputy Bernard J. Durkan asked the Minister for Finance if his Department continues to monitor developments in the insurance industry, with particular reference to the need to provide cover for all types of insurance at viable rates particularly small and medium sized businesses in the aftermath of Covid-19; the status of the development of a new insurance reform action plan; and if he will make a statement on the matter. [17641/21]
View answerThe Government has prioritised the reform of the insurance sector in order to improve the cost and availability of this key financial service, including for businesses. The Action Plan for Insurance Reform sets out 66 actions in this regard across several policy areas, including my Department, with 95% due to be completed by the end of 2021. At its most recent meeting, the Cabinet Sub-Group on Insurance Reform, which oversees the implementation of the Action Plan, reflected upon the considerable progress made in the first three months of this year. Achievements include:
- The creation of an Office to Promote Competition in the Insurance Market within the Department of Finance.
- The adoption of new Personal Injuries Guidelines by the Judicial Council.
- The launch of a public consultation on proposals to reform the Personal Injuries Assessment Board .
Priorities for the next three months include: strengthening the laws on perjury, expanding the National Claims Information Database so that it publishes its first report on employer and public liability insurance, and examining the Central Bank’s final report on differential pricing so that we can respond accordingly.
A key action of the Government’s insurance reform agenda is the establishment of The Office to Promote Competition in the Insurance Market within my Department, chaired by Minister of State Fleming. Its role is twofold: to assist in the reduction of insurance costs and the increase of the availability of cover, including for businesses, by promoting competition in the Irish insurance market. It will employ a strategic approach to the promotion of insurance competition, including encouraging transparency and championing the provision of information in relation to the insurance market and available products. Since its establishment, the Office has held a number of meetings with several important stakeholders, including representatives of the insurance industry and business groups as well as representatives of civic society to discuss consumer empowerment, and increasing provision of relevant information. It has also had useful discussions with other state regulators and the Central Bank on promoting competition issues.
The Action Plan also prioritises working to protect customers during and after the COVID-19 crisis. In our ongoing engagement with the insurance industry, Minister of State Fleming and I have repeatedly raised this issue and emphasised the importance of treating customers honestly, fairly and professionally. This has resulted in a number of insurers announcing forbearance measures and motor insurance rebates for customers. The industry’s response to the pandemic will remain a feature of our future engagement, including at the upcoming meetings between Minister of State Fleming and insurers.
I can assure the Deputy that we will continue to engage extensively on this matter and monitor developments in the sector as the Government drives forward the insurance reform agenda. Minister of State Fleming and I look forward to continue working with colleagues and stakeholders to implement further aspects of the Action Plan, with a view to improve both the cost and availability of insurance for all consumers, businesses and community groups.
63. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he expects the economy to remain competitive in the short to medium-term notwithstanding the impact of Brexit and the Covid-19 virus; and if he will make a statement on the matter. [17642/21]
View answer67. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he remains satisfied that Ireland remains an attractive location for foreign direct investment; and if he will make a statement on the matter. [17646/21]
View answer69. Deputy Bernard J. Durkan asked the Minister for Finance the degree to which he remains satisfied that economic progress can continue notwithstanding international turbulence; and if he will make a statement on the matter. [17648/21]
View answerI propose to take Questions Nos. 63, 67 and 69 together.
Approaching the pandemic, the Irish economy was in a healthy position. Strong rates of economic growth had been recorded for a number of years, the labour market was effectively at full employment, while surpluses were recorded on the current account of the balance of payments and the government budget balance. While the negative effects of Covid-19 and Brexit are significant, these factors support the enduring competitiveness of the Irish economy.
While the domestic sector suffered a severe hit last year, the multinational sector has proven resilient demonstrating the competitiveness of Irish exports on world markets. Indeed, the IDA’s results for 2020 suggests foreign companies continue to value our FDI strengths. These include our talented and flexible workforce, a track record as a successful home to global business, and a hard-won reputation as a pro-enterprise jurisdiction.
As the global economy is experiencing the shock of the Covid-19 pandemic in a reasonably symmetric way, Ireland’s relative competitiveness on the international stage is not expected to be significantly affected. As a result, the recent series of surpluses in Ireland’s current account are expected to continue. The 2020 IMD World Competitiveness Yearbook ranked Ireland as the 4th most competitive country in the EU and the 12th most competitive country in the world.
In light of the vaccine rollout and the recovering international economy, the outlook for Ireland’s economy over the short-to-medium term has improved. For instance, the EU Commission is forecasting GDP growth of around 3 ½ per cent this year and next. However, there is a considerable degree of uncertainty surrounding the short-term economic outlook. The pace and extent of any economic recovery this year will ultimately depend on many factors, including the speed at which Covid-19 vaccines can be rolled out, the time it takes to suppress the current surge of the virus, as well as the impact of the UK’s exit from the EU on the Irish economy.
Equally, as a small open economy Ireland is particularly exposed to external risks, including the international development of the pandemic, the extent of permanent damage to the global economy – so-called “scarring” effects, as well as premature fiscal or monetary tightening. External risks will continue to be monitored carefully by my Department.
My Department will publish updated macroeconomic forecasts with the Stability Programme Update in April.
64. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which it might be possible to bring mortgage interest rates here into line with those applicable throughout Europe; and if he will make a statement on the matter. [17643/21]
View answer71. Deputy Bernard J. Durkan asked the Minister for Finance his views on whether house mortgage costs here will fall into par with those available in other EU member states in the Eurozone or outside; and if he will make a statement on the matter. [17650/21]
View answerI propose to take Questions Nos. 64 and 71 together.
I am aware that the general level of interest rates on new mortgage lending in Ireland are higher than is the case in many other European countries, though it should also be noted that recent trends indicate that certain mortgage rates have been falling. For example, the interest rates on new fixed rate mortgages (excluding renegotiations) have fallen from 4.11% in December 2014 to 2.65% in January 2021.
However, Irish mortgages can have different characteristics from those offered in other countries making the direct comparison of headline rates not fully consistent. For example, many Irish banks include incentives such as cash back offers which reduce the effective Irish mortgage interest rate. Also Irish mortgages are also generally not subject to upfront fees which are typically charged by banks in some other EU jurisdictions.
Nevertheless, there are a number of important factors which will likely influence the interest rates charged on Irish mortgages such as:-
- credit risk and capital requirements which in Ireland are elevated due to historical loss experience;
- the level of non-performing and restructured loans which is higher in Ireland relative to other European banks;
- there are lower levels of competition in the Irish banking market compared to other jurisdictions.
However, the Central Bank has a range of measures to protect consumers who are taking out a mortgage. The consumer protection framework requires lenders to be transparent and fair in all their dealings with borrowers and that borrowers are protected from the beginning to the end of the mortgage life cycle; through protections at the initial marketing/advertising stage, in assessing the affordability and suitability of the mortgage and at a time when borrowers may find themselves in financial difficulties. In particular, the Central Bank introduced of a number of increased protections for variable rate mortgage holders which came into effect in February 2017. The enhanced measures, which are provided for in an Addendum to the Consumer Protection Code 2012, require lenders to explain to borrowers how their variable interest rates have been set, including in the event of an increase. The measures also improve the level of information required to be provided to borrowers on variable rates about other mortgage products their lender provides which could provide savings for the borrower and signpost the borrower to the CCPC’s mortgage switching tool.
The Central Bank also introduced additional changes to the Consumer Protection Code in January 2019 to help consumers make savings on their mortgage repayments, provide additional protections to consumers who are eligible to switch, and facilitate mortgage switching through enhancing the transparency of the mortgage framework. Consumers can reduce average pricing in the mortgage market by availing of switching options to ensure that recent and potential future price reductions pass through to the greatest number of customers possible. Indeed the Central Bank advises that a recent study by it estimated that three in every five ‘eligible’ mortgages for principal dwelling homes stand to save over €1,000 within the first year if they switch and €10,000 over the remaining term.
Ultimately, however, the price lenders charge for their loans is a commercial matter for individual lenders. As Minister for Finance I cannot determine the lending policies of individual banks including the interest rates they charge for mortgages and other loans. Nevertheless, I will continue to work with the Central Bank and also engage with lenders to encourage, within a framework which seeks to maintain overall financial stability, greater benefits for borrowers.
65. Deputy Bernard J. Durkan asked the Minister for Finance the degree to which he continues to monitor activities in financial circles post-Brexit with a view to ensuring that financial services here are not in any way disadvantaged as a result of Brexit; and if he will make a statement on the matter. [17644/21]
View answerMy Department has been participating in whole of Government preparations for Brexit since before the UK referendum in 2016 and, in line with the Government’s overall approach, this work intensified during 2020 ahead of the end of the transition period.
My Department has been working closely with the Central Bank of Ireland and the National Treasury Management Agency (NTMA), through the Financial Stability Group, and through the Brexit Contact Group, to limit the impact of key identified risks in the Irish financial system and review progress on readiness planning. This work and engagement has sought to ensure that the sector is adequately prepared, and that financial services firms and market participants have contingency plans in place to cope with the possible effects of Brexit, with as little disruption for consumers, investors and markets as possible. On the basis of its work and engagement across the sector, the Central Bank has been able to assure me that the financial services sector is well prepared and resilient enough to manage the changes associated with Brexit.
Since the end of the transition period, my Department, the Central Bank of Ireland and the NTMA have been monitoring developments and activities in the financial sector and this monitoring will continue in accordance with their respective responsibilities.
The Deputy may be aware of the recent successful migration of Irish securities settlement, from the UK CREST system to Euroclear Bank Belgium. The UK decision to leave the EU precipitated the need to migrate the Irish system to an EU entity. This migration ensures that Ireland remains well connected into the heart of the EU’s capital markets - with the stable investment and legislative environment that comes with that access and activity.
In addition to the financial services provisions included in the EU-UK Trade and Cooperation Agreement, both the EU and the UK agreed to establish a Memorandum of Understanding on structured regulatory cooperation on financial services. This is currently being progressed and it is a welcome measure which will support continued cooperation between the EU and UK in financial services.
The nature, scale and complexity of Ireland’s international financial services sector will change in a number of ways as a result of the financial services firms relocating from the UK as a result of Brexit and those looking to set up operations in the EU for the first time. The industry in Ireland has become broader and more diverse with more firms carrying out a greater range of regulated activities than at any time.
The full impact of Brexit for Ireland’s international financial services sector may not materialise for some years. At present, firms are establishing the foundations of a new or significantly expanded presence in Ireland, creating a platform for future growth opportunities in all sectors: insurance, banking, and investment management.
A number of government strategies have sought to grow the international financial services sector over the last number of decades, and these strategies were in place long before Brexit. The latest iteration of these strategies is ‘Ireland for Finance , the strategy for the development of Ireland’s international financial services sector to 2025’.
The Government and various state agencies continue to implement that Strategy, (and indeed industry lead on some appropriate action measures under the annual action plans) and are working to fully capture any opportunities for inward investment that emerge through promoting Ireland’s strengths as a leading financial services centre.
66. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which the economic fundamentals remain stable here notwithstanding the impact of Brexit and Covid-19; and if he will make a statement on the matter. [17645/21]
View answerPrior to the pandemic Irish economic fundamentals were very strong, with robust growth, a labour market close to full employment, and dual surpluses in the current account of the balance of payments and the public finances. The outbreak of the pandemic turned the economy on its head in the space of a few weeks, with the introduction of Covid-19 restrictions resulting in a sharp contraction in domestic economic activity last year. However, in keeping with the pattern seen in other countries, the economy rebounded as restrictions were eased.
My Department, along with the ESRI, conducted an analysis of the sectoral overlap between the Covid-19 and Brexit shocks to help us plan accordingly. The key finding of the analysis is that there is limited overlap of the sectors exposed to the different shocks. No sector was found to be severely affected by both shocks. While the analysis was based on the assumption of a ‘disorderly’ Brexit, this general conclusion is still applicable today. Nevertheless, there still remains considerable uncertainty surrounding the economic outlook as it will depend on many factors, including the speed at which Covid-19 vaccines can be rolled out which is itself a function of supply.
As the vaccine programme steps up throughout the second quarter this year and beyond, Covid related restrictions will gradually be eased and a sustained economic recovery can then take hold in the second half of the year. The recovery in the domestic economy should be supported by the release of pent-up demand financed by the unwinding of historically high levels of household savings.
While the effects of Covid-19 have been severe, our resilience and strength comes from being an economy that remains open to investment and facilitates trade across our borders. This has proven to be the fundamental strength of the Irish economy over decades and is still the case today.
68. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he remains satisfied that taxation matters remain within the competence of national governments throughout the European Union and that no decisions are taken to jeopardise same; and if he will make a statement on the matter. [17647/21]
View answerAs the Deputy will be aware tax sovereignty is an important issue for Ireland.
Ireland believes that the current unanimity based voting procedure which applies among EU Member States is the most appropriate voting system in the area of taxation. Indeed, over the last 4 years, over 20 taxation initiatives have been agreed by Member States through this voting process. This is an average of one initiative being agreed every 3 months. This includes important Directives on VAT, administrative co-operation, Anti-Tax-Avoidance and also the EU list of non-cooperative tax jurisdictions.
Given this impressive record of achieving agreement at EU level on tax issues, I do not see the need to move away from the requirement for unanimity, which has worked so well to date. For example, most recently, the seventh iteration of the Directive on Administrative Cooperation (DAC7) to introduce new exchange of information provisions for digital platforms was only proposed by the Commission last July, agreed among Member States in December, and was adopted on March 22.
Ireland’s tax sovereignty is an important issue for Irish citizens. In the run up to the Lisbon Treaty referendum, EU leaders made a public political commitment confirming that the Treaty did not impinge on Member States’ tax sovereignty, and I believe that this commitment was a significant factor in the people's decision to accept the Treaty.
The Programme for Government affirms that taxation is a national competence. Ireland has been consistently clear that unanimity is the appropriate voting system for any tax proposals at EU level, and I am confident that this will remain the case.
70. Deputy Bernard J. Durkan asked the Minister for Finance if he will take action to discourage house price increases that currently make it difficult or impossible for first time house buyers to build or acquire a home of their own; and if he will make a statement on the matter. [17649/21]
View answerThe Department of Finance continues to monitor all aspects of the housing market, including the rate of property price inflation. As of January 2021, annual property price inflation stood at 2.6 per cent.
The Government’s primary response to mitigating residential price inflation is to increase supply. I am encouraged by the stability in new dwelling completions last year in spite of the challenges of the pandemic. According to the Central Statistics Office, there were 20,676 residential units completed in 2020, just 1.9 per cent lower than the 21,087 new units completed in 2019.
Of course, further progress is required and that is why the addition of new and affordable homes continues to be supported through Government action. To this end, in Budget 2021, I amended the Stamp Duty Residential Development Refund Scheme to include operations commenced by 31 December 2022 and extended the time allowed between commencement and completion of a qualifying project by six months to two-and-a-half years. This will encourage the development of residential properties on non-residential land. The provision of affordable homes was also supported through the Budget with an allocation of €50 million to the Serviced Sites Fund to provide infrastructure to support the delivery of homes to purchase at discounted prices.
The Government also continues to support first-time buyers. In Budget 2021, I extended the July Stimulus measures of the Help-to-Buy scheme to the end of 2021, which will provide further support to first-time buyers with the deposit they need to buy or build a new house or apartment. First-time buyers who are unable to secure a commercial bank loan can also avail of the Rebuilding Ireland Home Loan. This is a Government-backed mortgage on competitive terms for first-time-buyers nationwide to purchase a new or second-hand home or to self-build.
In addition to the measures taken at budget-time, my colleague, the Minister for Housing, Local Government and Heritage, recently published the Land Development Agency Bill 2021. The Bill establishes the Land Development Agency (LDA) on a statutory basis and sets out the core goals of the LDA to undertake strategic land assembly and utilise state lands to build affordable homes.
All of these measures testify to the need to take a multi-faceted approach to increase the supply of new housing and I will continue to work closely with my Government colleagues to ensure this is delivered.
72. Deputy Bernard J. Durkan asked the Minister for Finance if he will request the Central Bank to enable applicants for mortgages to use their time in rented accommodation as a reference for the ability to service a mortgage; and if he will make a statement on the matter. [17651/21]
View answerThe Central Bank of Ireland, as part of its independent mandate to preserve and protect financial stability in Ireland, has statutory responsibility for the regulation of mortgage lending by banks and other regulated entities.
In line with this mandate, the Central Bank introduced macroprudential measures for residential mortgage lending in February 2015. The objective of these mortgage measures is to increase the resilience of the banking sector and households and to reduce the risk of credit-house price spirals from developing. The mortgage measures apply certain loan-to-value (LTV) and loan-to-income (LTI) restrictions to residential mortgage lending by financial institutions regulated by the Central Bank. For primary dwelling mortgages, the LTI limit is 3.5 times the borrower’s income. For first-time buyers (FTBs), the LTV limit is 90% of the value of the residential property and for second and subsequent buyers the LTV is 80% of the value of the residential property. However, lenders have a limited flexibility at their own discretion to provide to provide some mortgage lending in excess of these thresholds.
While regulated lenders must comply with the various rules within the macroprudential and consumer protection frameworks, the extension of credit by lenders to potential customers is a commercial decision for the lender themselves, and each lender will have its own individual credit lending policies. Before providing a mortgage, a lender is required to undertake thorough creditworthiness assessments and satisfy itself about the ability of the borrower to repay the mortgage. This assessment must take into account the individual circumstances of the borrower, including personal circumstances and financial situation. In this context lenders can and do take into account rental payments when making their affordability assessment as part of regular underwriting process to assess borrowers’ ability to repay a mortgage.
However, the significant differences between the nature of a rental contract and a mortgage contract to purchase a home should also be borne in mind. A house purchase and associated mortgage contract usually has a more long term character than a rental contract and so will leave the house purchaser/mortgage borrower more exposed to future shocks to incomes, house prices and interest rates in for a longer period of time. Also the ability to make regular repayments – evidenced through rental payments – does not substitute or remove the need for the borrower to have a down payment deposit to purchase a house for a house. Such a down payment provides the homeowner and borrower with an important prudent level of initial equity in the house and so can help households to absorb some fall in house prices before the borrower could fall into negative equity.
