Ireland relaxes crisis-era mortgage rules

Ireland’s central bank has relaxed rules for first-time buyers despite rising mortgage costs and concerns it will only lead to higher prices and deepen the country’s housing crisis.

Beginning in January, first-time buyers will be able to borrow up to four times their gross income, up from 3.5 times under current rules.

The move, which follows a year-long review, was a “reasonable” recalibration of measures in place since 2015, central bank Governor Gabriel Makhlouf said. Those measures were a response to a credit-driven housing bubble that burst in 2008 and collapsed the economy.

Ireland’s rules remain strict by international standards and measures restricting first-time buyers to 90 per cent of property value, or 70 per cent in the case of buyers buying to let, will remain in place.

Ireland is fighting with a deep housing crisis driven by insufficient supply and high prices that make both rental and purchase difficult.

according to a quarterly report by estate agents, median Irish home prices were 7.7% higher in the third quarter than a year ago, with the median listing price now €311,514, based on a weighted average of all property types and locations. The average listing price is more than seven times the median annual median salary.

Makhlouf told a news conference that, without taking into account other factors, “there will be a modest effect on house prices.”

However, he insisted that there was no danger of runaway prices triggering a crisis that could endanger the economy. “The review has concluded that while house prices have grown since 2015, the credit-driven element, where loan and property prices chase each other up in an unsustainable cycle, has not been a driving force. Makhlouf said.

Ireland’s economy and financial system were healthier than in 2015 and better able to withstand shocks, the governor added. “The central bank is not going to start making decisions that threaten financial stability.”

the european central bank, which sets interest rates across the eurozone, raised borrowing costs by 125 basis points over the summer to 0.75 percent. It is expected to raise rates by another 75 bps next Thursday.

Michael Dowling, CEO of mortgage specialists Dowling Financial, told RTÉ radio: “I don’t think [the measures] house prices are going to rise in an environment where interest rates are rising.”

Irish mortgage lenders have started raising mortgage rates, most for about 0.5 points — on the back of ECB decisions.

Dermot O’Leary, chief economist at brokers Goodbody, estimated that a couple earning €80,000 combined and with a mortgage of €320,000 could end up paying more than 35 percent of their income in refunds under the new rules if rates of interest go up. by 3 percentage points.

But Pearse Doherty, finance spokesman for Sinn Féin, the nationalist political party that is leading the polls in Ireland for its commitment to solving the housing crisis, said the policy would lead to more borrowing and higher house prices. , while the problem that there are too many would be few houses.

“The concern here is to allow people, even a small number of people, to borrow more, because there is a small number of homes available, which drives up house prices because everyone has the ability to borrow those 30,000 or 40,000 additional euros. Doherty told RTÉ. “Everyone now has more money in their pockets to chase the same and outbid the same type of houses.”

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