Giving households access to “unsustainable” amounts of credit to buy homes will not lead to a sustainable supply of much-needed properties, Central Bank Deputy Governor Sharon Donnery said Thursday.
The comments underscore the Central Bank’s reluctance to introduce major changes to its mortgage lending restrictions as it continues to conduct a comprehensive review of rules introduced in 2015 to prevent a repeat of the credit bubble that burst. in 2008.
“Looking at the Irish property market and considering whether there is enough supply to meet demand, I think the answer is clear. Housing demand is strong and supply has not kept pace,” Ms Donnery told a conference organized by NUI Galway.
However, she added: “The fact is that unsustainable levels of credit will not lead to a sustainable supply of new homes. On the contrary, it risks the re-emergence of a spiral of credit prices and another painful real estate cycle of boom and bust.
“The challenges facing the broader housing market, around the sustainability of supply and the affordability of housing prices, would not be solved by excessive household indebtedness or imprudent lending.”
A Red C survey carried out last month on behalf of Bonkers.ie, the price comparison site, indicated that nearly two-thirds of consumers favor an easing of mortgage restrictions. These limit most borrowers to take out home loans amounting to 3.5 times their income and require first-time buyers to put down a 10% security deposit, rising to 20% for others.
Irish house prices rose at an annual rate of 12.4% in September, according to the latest figures from the Central Statistics Office (CSO), as supply continues to lag behind demand.
The state’s largest homebuilders, Cairn Homes and Glenveagh Properties, have said in recent months that the rules — particularly around income loans — are affecting the viability of some projects for smaller builders. They are largely dependent on alternative finance providers after traditional banks pulled out of development lending in the wake of the crash.
Ms Donnery said the Central Bank’s decisions on the mortgage rules framework “will be guided by careful analysis based on evidence and the public interest”.
Meanwhile, the aftermath of the financial crash continues to be felt by households and lenders.
Some 4.7% of all Irish homeowner loans, representing 34,182 accounts, were at least 90 days past due at the end of September, according to figures released by the Central Bank on Thursday.
The ratio has fallen steadily from a peak of 12.9% in 2013 and is now at its lowest level since June 2010.
Long-term overdue accounts of more than a year accounted for 57% of all cases – just under 20,000 loans, the bank said.
Banks and analysts expect arrears cases to rise next year in a delayed response to the Covid-19 crisis, following an unprecedented period of financial support for households and businesses.