The Central Bank has been warned this week that rules regarding mortgage lending need to change in order to help buyers afford a property. Current regulations on lending are some of the strictest in the EU and we also enjoy one of the highest interest rates on repayments.
Chief Executive of the Institute of Professional Auctioneers and Valuers (IPAV) Mr. Pat Davitt, has recently written to Central Bank Governor Mr. Gabriel Makhlouf urging him to consider raising the limit a person can borrow to four-and-a-half times their salary, as currently people on average incomes are effectively locked out of the market. Right now people are only allowed to borrow 3-and-a-half times their annual salary. Last year, the Central Statistics Office showed average annual earnings for full-time workers stood at €48,946.
As well as the obvious benefits of owning one’s home, the knock-on effects of more home ownership would include freeing up rental properties which are badly needed due to the current housing shortage – supply for which is not due to catch up with demand for another 3 years.
Mr. Davitt brought up several concerns around the current rules such as those affecting people’s financial independence and consequences for the States welfare system, which is based on the assumption of people owning their homes once they retire. Doing nothing now could potentially have serious consequences in the future.
The Central Bank has taken this advice on board as they are now looking at conducting a broader review of the overall framework for mortgage measures. The CBI has become aware that the rapid rise in rental properties, at the end of the day, comes down to the underlying imbalances between housing supply and demand, a challenge Ireland has been facing for many years. Changes to mortgage lending rules will not be the magic wand to fix this problem, but will certainly go a long way to helping many hard working people get out of rented properties and finally afford their first home.