Dáil Éireann Debate, Thursday - 21 October 2021
183. Deputy Joe Carey asked the Minister for Finance if his Department will give direction to the Central Bank and banking institutions to recognise the capacity to pay rent of first-time buyers coupled with their history of paying rent as key eligibility criteria in securing a mortgage given the struggles being experienced by first-time buyers to save for a mortgage while also paying rent; and if he will make a statement on the matter. [51900/21]
Amharc ar fhreagraThe Central Bank of 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 relevant financial institutions regulated by the Central Bank. The LTI limit is 3.5 times the borrower’s income. For first-time buyers, the LTV limit is 90% of the value of the residential property, (i.e. a deposit of 10%).
While regulated lenders must comply with the various rules within the macro prudential 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, 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.
The Central Bank has advised that in general, lenders do take rental payments into account when making their affordability assessment as part of regular underwriting process, to assess borrowers’ ability to repay a mortgage. However, there is no Central Bank guidance or guidelines to lenders specifically in relation to their consideration of rent being paid by mortgage applicants in the context of their mortgage applications. This is for each bank to determine and to set out in its credit policy and it is therefore not an issue that I can instruct the Central Bank or lenders on.
It is important to note that a mortgage is the largest liability that most households will take on in their lifetime. 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. The ability to make regular repayments – evidenced through rental payments – does not substitute for the protection for borrowers in having a deposit. 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.
It is worth noting that the Central Bank is carrying out a review of the framework for the mortgage measures throughout 2021 and 2022, in parallel to its regular annual reviews of the calibration of the measures to ensure they continue to remain fit for purpose. The Central Bank has advised that this review will provide it an opportunity to examine a range of topics including but not limited to the objectives of the mortgage measures, the choice of tools and the framework and strategy used for calibration. The evolution of the housing and mortgage markets since 2015 and that the availability of new data sources (such as the central credit register) will inform the Bank's analysis. Given the widespread international use of mortgage measures, the Central Bank has also advised that it will also analyse how different countries implement and evaluate their macro prudential measures to ensure it takes international learning and best practice into its review.
