The Central Bank have confirmed that they will introduce measures to limit the amount of money that banks can lend to customers looking to buy a home, according to Governor Patrick Honohan.
Mr Honohan said that full details of the measures, which would cap the size of a loan based on the value of the property or the income of the borrowers, would be announced in due course. Mr Honohan broke the news whilst speaking at UCD’s Economics Society, he said given how badly banks had misjudged the riskiness of loans during the boom, it was “hard to deny” that a cap of some kind would stop a similar situation arising again.
He was speaking of how the banks had mistakes in the past, and strongly argued that by following rules based on loan-to-value and loan-to-income ratios, would be of interest to them and would also be beneficial to them as property prices began to rise again. Mr Honohan said: “Even in the absence of a credit-driven bubble, there is much to be said for bringing back some rules of this type,” he said.
Although he said any such rules were not governed by European law and were at the discretion of national authorities.
Mr Honohan also gave his support to calls by the Irish Fiscal Advisory Council for the Government to use any additional revenue to pay down the national debt. Honohan agreed with the calls saying such use of the additional revenue would help convince international investors markets that it was determined to meet fiscal goals set out by the EU.
He also was concerned with the continuing rise of interest rates amongst non-tracker mortgage holders, despite the European Central Bank rate being at a record low level. However, he said he would not support calls for the Central Bank to set a ceiling on such rates, as it could discourage a foreign company from entering the market to compete.
He said; “If local banks are charging unnecessarily high interest rates, that will be an inducement for new entry into lending here,” “In contrast, aggressive official interest rate spread control would be the clearest warning signal to would-be entrants that they might not be permitted to earn sufficient profits to justify the costs of entering.”