Dáil Éireann Debate, Tuesday - 15 June 2021
87. Deputy Bríd Smith asked the Minister for Finance if married couples are facing added difficulties in applying for mortgages from the main pillar banks as a result of the criteria used to calculate couples income; if such criteria are the bank’s own or derives from the Central Bank guidelines; and if he will make a statement on the matter. [31804/21]
View answer125. Deputy Bríd Smith asked the Minister for Finance his plans to ensure that lending institutions take account of existing tenants' ability to meet current rental costs when assessing their mortgage applications given that couples are being denied mortgage applications for sums whose monthly repayments work out much lower than their current rents; and if he will make a statement on the matter. [31805/21]
View answerI propose to take Questions Nos. 87 and 125 together.
The 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 driven 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 example, 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 (SSBs) the LTV limit is 80%. However, lenders also have a certain flexibility at their own discretion to provide a certain amount of 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 (including a joint mortgage application) is ultimately a commercial decision for the lender themselves and each lender will have its own individual credit lending policies.
Before providing a mortgage, lenders are required to undertake thorough creditworthiness assessments to ensure a borrower will be able 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 credit worthiness assessment and underwriting process.
However it is also worth noting that a mortgage is the largest liability that most households will take on in their lifetime and that it comes with less flexibility than a rental contract, leaving borrowers more exposed to shocks to incomes, house prices and interest rates in the future. Therefore, the ability to make regular repayments – evidenced through rental payments – does not substitute for the protection for borrowers in having a down payment for the purchase of a residential property. A mortgage deposit acts as a cushion of housing equity, and can help households to absorb house price falls without the borrower falling into negative equity.
By way of additional information the European Union (Consumer Mortgage Credit Agreements) Regulations 2016 (CMCAR) provide that before concluding a mortgage credit agreement, a lender must make a thorough assessment of the consumer’s creditworthiness. The assessment must take appropriate account of factors relevant to verifying the prospect of the consumer being able to meet his or her obligations under the credit agreement. The CMCAR provide that a lender should only make credit available to a consumer where the result of the creditworthiness assessment indicates that the consumer’s obligations resulting from the credit agreement are likely to be met in the manner required under that agreement. The assessment of creditworthiness must be carried out on the basis of information on the consumer’s income and expenses including rent and other financial and economic circumstances which is necessary, sufficient and proportionate and lenders must be satisfied that mortgages are affordable for borrowers for the duration of the life of a loan.
In addition, the Central Bank’s Consumer Protection Code 2012 imposes ‘Knowing the Consumer and Suitability’ requirements on lenders. Under these requirements, lenders are required to assess affordability of credit and the suitability of a product or service based on the individual circumstances of each borrower. Where a lender refuses a mortgage application, the CMCAR requires that the lender must inform the consumer without delay of the refusal. In addition, the Code requires that the lender must clearly outline to the consumer the reasons why the credit was not approved, and provide these reasons on paper if requested.
If a mortgage applicant is not satisfied with how a regulated entity is dealing with them, or they believe that the regulated entity is not following the requirements of the Central Bank’s codes and regulations or other financial services law, they should make a complaint directly to the regulated entity. If they are still not satisfied with the response from the regulated entity, the response to their complaint from the regulated entity is required to include details for the borrower on how to refer their complaint to the Financial Services and Pensions Ombudsman.
