Amid the furore surrounding last week's pronouncements from the Central Bank on how it plans to restrict mortgage lending from early next year, it might be timely to consider developments in other jurisdictions. Doing so makes the Irish proposals appear to be out of whack with European norms.
Take Sweden. Last week Swedish banks (yes, you read that correctly: it was the banks rather than a regulator that suggested the move) said that borrowers should have to take out repayment as opposed to interest-only mortgages on all loans of more than 50 per cent of the market value of a property, down from the current recommended level of 70 per cent. This is in addition to a previous rule capping mortgages, but only at 85 per cent of loan-to-value (LTV).
In April, the regulator, the Financial Conduct Authority, introduced a series of detailed checks that borrowers have to undergo, as part of its mortgage market review. This means that putative borrowers now have to be ready to answer questions about everything from if and when they are planning to start a family to whether or not they gamble. Subsequently, the Bank of England came out with its mortgage lending limits, which mean that, from the start of this month, banks will only be allowed to offer 15 per cent of new mortgages at multiples of higher than 4.5 times a borrower's income. This is significantly less stringent than the Central Bank's proposal to restrict lending in excess of 80 per cent LTV to 15 per cent of new lending and to reduce income multiples to 3.5.
The third part of the UK’s approach is where it gets interesting, however. Under the country’s Help to Buy scheme, property buyers only have to come up with a downpayment of 5 per cent, as the government can step in to lend up to 20 per cent of the purchase price.
Could a similar approach be adopted in Ireland to help alleviate the impact of stricter lending controls? Back in May, Minister for Finance Michael Noonan said that it was "very difficult to envisage a young couple having more than 10 per cent of a house as a deposit" and he hinted at plans to be introduced before the Finance Bill that would see the Government follow a similar path to that of the UK by guaranteeing a portion of mortgages to first-time buyers. So was last week's mortgage proposal conveniently timed before the budget? We'll find out today.
