Mortgage lending must fully comply with the regulatory requirements set by the Central Bank, both in relation to the financial institution itself and also the safeguarding of the borrower's interests. When providing a product or service to a customer, a financial institution must comply with the “Knowing the Customer” and “Suitability Provisions” of the Central Bank’s revised Consumer Protection Code (“the Code”), which came into effect on 1 January this year. This process involves, inter alia, gathering relevant information from the customer about his/her financial situation, individual circumstances and needs. Based on this information, the financial institution is required to complete a “Suitability Process”, where only products suitable to that particular customer are offered. While affordability is a prime component of suitability, a fuller consideration of a customer’s individual circumstances and needs would be required in order to comply with the suitability provisions of the Code.
In this regard, a significant addition to the Code is the 2 per cent stress testing that mortgage lenders are obliged to undertake with respect to all personal consumer mortgage applications with the exception of fixed rate mortgage products of at least 5 years duration. The revised Consumer Protection Code may be accessed at www.centralbank.ie.
As regards the future funding of the mortgage market, the banking system restructuring plan creates capacity for the two Pillar Banks, Bank of Ireland and AIB, to provide lending in excess of €30 billion in the years 2011-2013. SME and new mortgage lending for these banks is expected to be in the range of €16-20bn over this period.
