Fianna Fáil Finance spokesperson Michael McGrath has said that the Central Bank rules on mortgage lending, in place since February of this year, are having a significant adverse effect on the ability of families to trade up as their needs change as well as having an impact on first time buyers in major urban centres.
He was commenting following remarks by the Minister for Finance to The Irish Times in relation to the deposit rules for first time buyers in which the Minister stated: “There is a shortage of starter homes in Dublin now. Builders would say that the application of the prudential regulations from the bank might be too restrictive.”
Deputy McGrath commented “Minister Noonan has focused on just one aspect of the debate on home ownership. It is true that the new Central Bank rules are having an impact on first-time buyers hoping to buy in areas where the price of a home exceeds the €220,000 threshold. This is a problem now just in Dublin but in other urban centres such as Cork. In my view, a deposit of 10% for a first time buyer is sufficient and the real focus should be on assessing a person’s repayment capacity.
“While it is appropriate that these rules be kept under review, it is my belief that another acute issue is developing in relation to families who are looking to trade up. When the rules were introduced a much more stringent approach was adopted in relation to non-first time buyers requiring them to have a full 20% deposit.
“Due to the fall in house prices during the recession, many families have seen the equity in their home eroded making it close to impossible for them to come up with a required 20% deposit if they need to move home. This is resulting in an entire generation of people being trapped in houses and apartments which are no longer suitable for their needs even though they have demonstrated a clear capacity to meet their existing mortgage payments. Inevitably this has a knock on effect on the supply of housing units for first time buyers.
“It is simply unfair that a family who may never have missed a mortgage payment and now wishes to move to a new home is faced with an onerous 20% deposit requirement on the value of the new mortgage. For a family wishing to trade up to a €350,000 home they will now need to have €70,000 in cash having cleared their first mortgage with the proceeds from the sale of their home. This will prove impossible for many families.
“I believe it is essential that the impact of the rules is examined in detail. Specifically I am requesting that the Central Bank undertake a review at the start of 2016 of how the rules have impacted in their first year in operation.
“The government has actively facilitated and supported the purchase of Irish residential property by vulture funds at the expense of prospective home buyers in Ireland. This has been done through attractive capital gains tax relief on property investment and an attractive tax regime for vehicles such as Real Estate Investment Trusts. The Central Bank rules on mortgage lending for second time buyers, together with a market value based property tax and the abolition of mortgage interest relief is resulting the in the odds being stacked against aspiring home buyers in Ireland.”