Fianna Fáil has published its submission to the Central Bank on the proposed new rules for mortgage lending. The party has made eight recommendations including changing the proposed new minimum deposit requirement from 20% to between 10% and 12%.
The Party’s Finance Spokesperson, Deputy Michael McGrath stated, “Prudent lending practices and the capacity to withstand economic or property market shocks without financial upheaval are essential for our economic wellbeing. It is our belief that the rules that emerge from this consultation process should take account of both the social and economic needs of the country.
“We believe the Central Bank’s proposed 20% minimum deposit requirement – to apply in at least 85% of cases – is excessive and will put home ownership beyond a vast number of individuals and couples into the future. At a time when rents are spiralling, anyone renting in the private sector will find it next to impossible to save for a 20% deposit. We believe the Central Bank should set a minimum deposit level somewhere in the range of 10% to 12%. This balances the need for prudence in the lending market and the aspiration of most people in Ireland to purchase a home at some stage in their lives.
“It is our view that the capacity of a person to repay a mortgage is a far more meaningful measure of the affordability of a mortgage than setting a 20% minimum deposit level. Setting such a high deposit threshold serves to provide a buffer for the banks in the event of a fall in property prices. If the Central Bank decides to press ahead with its plans, we believe the minimum deposit required should be phased in over an 18 month period so as not to create a sudden dislocation in the market.
“We believe that the dramatic escalation in house prices which is being experienced – especially in Dublin – is primarily driven by a lack of housing supply rather than by any suggestion of free flowing credit. In this regard, we believe that in parallel with new mortgage rules, a concurrent strategy to ensure a stable supply of suitable new housing units is needed.
“The availability of 35 years mortgages, often with initial interest only periods was in effect a form of sub-prime lending in the Irish mortgage sector. We believe that as an additional safeguard the maximum length of a mortgage should be set at 30 years. We have also recommended to the Central Bank that affordability rules should be based on net disposable income and not simply a loan to income multiple.
“I believe our proposals to the Central Bank would deal with the huge swings in house prices and activity which are both economically and socially destabilising. A stable, consistent, balanced property market is essential for social and economic cohesion into the future.”