Review Confirms Core Elements of Mortgage Measures Remain Unchanged
The outcome of the annual review of the residential mortgage measures has been published by the Central Bank of Ireland. The review is based on analysis of mortgage lending data in the context of wider housing market developments. The review considered the appropriate setting for the measures in 2018, given the current conditions and the outlook for the credit and housing markets. It also examined any practical implementation issues indicated by the Central Bank’s ongoing monitoring and supervision of regulated mortgage providers.
The mortgage measures were introduced as a permanent feature of the market in 2015 to increase bank and borrower resilience and ensure the system can better withstand future economic shocks. The measures are a key element of the Central Bank’s macro-prudential policy in line with our mandate to safeguard financial stability and protect consumers. In accordance with our mandate, the Central Bank is committed to ensuring that the role played by mortgage credit in the wider housing market remains sustainable. The measures are not designed to target a specific level of, or growth in, house prices.
Announcing the outcome of the Review, Governor Philip R. Lane (pictured above) said: “Our analysis suggests that the level of house prices is broadly consistent with current economic developments but it remains important to mitigate the risks for households and banks in the event of a future decline in house prices. On this basis the core elements of the measures, the loan to income (LTI) and loan to value (LTV) limits, will remain unchanged in 2018. In particular, lending will continue to be limited to 3.5 times income. This is the anchor of the measures and an essential constraint on excessively risky lending.
“However, our analysis indicates that the measures could operate more effectively by introducing separate loan to income allowances, similar to those we introduced for loan to value allowances last year. From January 2018, there will be separate LTI allowance pools for FTBs and SSBs: up to 20 per cent of the value of new lending to FTBs and up to 10 per cent of the value of new lending to SSBs will be permitted above the 3.5 LTI limit.
“These allocations broadly reflect current lending patterns in excess of the LTI limit to FTBs and SSBs. In combination with the separation of LTV allowances for FTB and SSB groups that we introduced last year, this revision delivers a simpler, more sustainable long-term policy framework. The larger allowance for above-ceiling lending to FTBs compared to SSBs reflects the different characteristics of these two groups. In particular, first-time buyers are typically younger, with current income levels lower relative to expected future income levels. However, the measures remains sufficiently flexible to allow us to respond to risky lending developments, should they arise in either buyer group.”
The detailed report sets out the analysis underpinning the changes made following the Review. The report also details a further technical amendment to the mortgage measures in relation to calculations on the value of collateral in the case of mortgages issued for construction purposes. The technical amendment ensures that the current prudent practice in the market, of taking the lowest available valuation for mortgages financing construction works, such as in the case of renovations, continues into the future. This amendment is not expected to have a material impact on the market, as it reflects the most common practice.
The Central Bank will continue to monitor developments as part of the annual review of the mortgage measures.
Governor Lane concluded: “We will continue to monitor developments through our annual cycle of reviews. We stand ready to adjust these borrower-based measures and/or other macro-prudential policy tools as may be appropriate to safeguard the long-term sustainability of Irish mortgage lending and the stability of the wider financial system.”