A decision on whether or not homebuyers will be required to have a 20 per cent deposit in place before being approved for a mortgage will be made in the "coming days", according to Central Bank of Ireland governor Patrick Honohan.
The Irish Times has learned the regulator plans to make an announcement next week.
Speaking on the fringes of a conference in Dublin organised by the International Monetary Fund in relation to Ireland's troika bailout programme and economic recovery, Mr Honohan conceded there has been "resistance from different sources" to his plans to change loan-to-value (LTV) ratios banks apply for home loans.
Lending strictures
Traditionally, Irish house buyers have been able to get a 90 per cent loan, which rose to up to 100 per cent in the bubble years. The Central Bank plans to reduce this to 80 per cent and to require lenders to impose an income threshold of 3.5 times earnings when considering mortgage applications.
Mr Honohan said the Central Bank has been “examining” the submissions made to it during its consultation process late last year to “see what we can do to achieve the goals of what we set out”.
When asked if the Central Bank’s proposals would be watered down, Mr Honohan said: “The final decision will be taken on this in the coming days . . . and I wouldn’t like to anticipate that because I’m not the only decision-maker but I hope my views will actually prevail.”
Last week, Mr Honohan told the Oireachtas banking inquiry that the new mortgage rules were very much his proposals.
One of the parties to call for the 80 per cent LTV to be watered down is the Department of Finance. Ann Nolan, second secretary general of the department, told the IMF conference the limits proposed were not "socially acceptable".
“I don‘t think it should be a position where the only people who get on the property ladder are those who have parents who can give them a big lump sum [for a deposit],” she said.
Ms Nolan argued there was a balance and it was a matter of “timing and phasing”.
The Central Bank's proposal for tighter LTVs on mortgages was echoed at the conference by Dutch economist Dirk Schoenmaker, dean of the Duisenberg School of Finance in the Netherlands.
He said Ireland needs to introduce a LTV ratio of 80 per cent for residential mortgages if we are to avoid another property boom and bust.
“You need to have less debt financing and more equity finance,” he said, adding equity can absorb losses. “You need to have lower LTVs.”
However, Mr Schoenmaker said a new LTV rule needs to be phased in as it continues to be difficult for house buyers to get credit here. “Start today with 85 per cent and then in a few years’ time [move to 80 per cent].”
He said that if Ireland doesn’t lower the LTV ratio, “you will get back to this problem of [house prices] going up and down”.
