Honohan questions the government’s response to mortgage lending restrictions


Mortgage lending limits weren’t put in place to dampen home prices, but they did have an impact on spiraling prices, said former central bank governor Patrick Honohan.

And he questioned the government’s “ill-conceived response” to mortgage limits by introducing the “help-to-buy” scheme.

He said it was unusual for the Treasury to submit a consultation to the central bank when discussing plans to introduce credit limits, arguing that this is not an ideal time to introduce limits.

The rules were introduced in 2015, with Prof. Honohan playing a central role in their introduction.

Prof Honohan, speaking at a central bank conference on the mortgage measures, insisted they have “macroeconomic bite” in easing house price inflation, although that is not the main goal of the limits.

The central bank is reviewing its controversial seven-year-old mortgage measures, which place tight caps on how much people can borrow to buy homes.

Prof Honohan said the limits were introduced at a time when the memory of the financial collapse was still fresh in people’s minds.

He said the Dáil had deferred the central bank and had not interfered in moves to set the limits.

However, he acknowledged that the limits have “visible effects on certain cohorts” of the population, particularly in urban areas.

He stressed that the rules were not issued at the behest of the IMF or the European Central Bank.

The conference was told that international experience suggests that limiting borrowing to buy a home prevents over-indebtedness and discourages banks from lending recklessly.

Credit limits in the country were introduced to increase the resilience of banks and borrowers, a Central Bank of Ireland conference is among the controversial measures.

Brokers and banks argue that the credit limits are too restrictive and are forcing people into a rental prison.

However, a major overhaul of policies by the central bank is considered unlikely.

Both rents and house prices are increasing by double digits, but in most parts of the country it is cheaper to buy than to rent.

The Central Bank of Ireland is holding a conference on mortgage lending limits as part of a review it is currently conducting.

New Zealand’s central banker Christian Hawkesby told the conference that similar borrowing limits in his country in 2013 introduced caps on the amount that can be borrowed relative to property values.

At that time, real estate prices in the country were increasing rapidly.

He said the rules were put in place to manage house prices and stop over-indebtedness.

Deputy Governor of the Reserve Bank of New Zealand Mr Hawkesby said rules were relaxed in 2019 and lifted during the Covid outbreak.

But they have since been reintroduced due to rapid house price inflation.

He said the main benefit of the credit limits for New Zealand is to reduce the number of loans with very high loan-to-value ratios on banks’ books.

The limits have also reduced borrowers’ likelihood of default, Mr Hawkesby said.

The Central Bank of Ireland has insisted that the credit limits here were not put in place to control house prices but to regulate borrowing.

Norway’s regulator Torbjorn Hageland told the conference that introducing credit limits in that country is dampening the build-up of risky lending.

The limits in Norway limit lending to five times income, not as strict as in this country.

Banco de Portugal’s Ana Cristina Leal said the lending measures she introduced have reduced the systemic risk in the banking system in that country.

Housing affordability is a key challenge for Government as average house prices in Dublin now exceed €500,000 and house price inflation is in excess of 15 per cent.

Critics of the rules, which limit most borrowers to a mortgage of three and a half times their income, say they are pushing thousands of people out of the housing market.

The central bank is reviewing its controversial seven-year-old mortgage measures, which place tight caps on how much people can borrow to buy homes.

Goodbody Stockbrokers banking analyst John Cronin said the Central Bank of Ireland “may choose to tweak the parameters of the rules.

However, he does not expect the current review process to result in a major overhaul of the mortgage measures regime. Honohan questions the government’s response to mortgage lending restrictions

Fry Electronics Team

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