Central Bank suggests that limits should be put in placed on mortgages – TheLiberal.ie – Our News, Your Views

Central Bank suggests that limits should be put in placed on mortgages


The Central Bank of Ireland has strongly suggested that formal limits should be considered on the amount of money people should be allowed to borrow to buy houses.

In a recent research report, Central Bank economists say banks should not lend more than 80% of the value of a property, and that borrowers should not get a mortgage of more than four times their income.

According to the economists this  would make both banks and households more resilient in market downturns, according to the research. The research report found that people with mortgages with high loan-to-value and loan-to-income ratios issued in 2007 were the most likely to run into trouble with repayments and suffer negative equity.

The Central Bank is understood to be preparing a consultation paper next week calling for submissions on the feasibility of introducing binding measures to restrict loans.
The CBI notes the Basel Committee on Bank Supervison regards 80% loan-to-value ratios as high.

The Central Bank believes that capping both ratios would act counter-cyclically by constraining borrowing, directly reducing credit demand and containing unsustainable increases in household debt.

The report is partially based on Bank of England research that says such caps do not target house price growth, though it says there is some evidence that they may act to impede such growth.
LTV and LTI limits have been introduced in Norway, Sweden Finland, New Zealand, Hong Kong and in a limited way in the UK.

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