Will the Central Bank's mortgage rule changes make Irish property prices rise or fall?

There's been a mixed reaction to Philip Lane's rule changes...

The Central Bank has modified its lending rules so that first-time buyers will only have to save a 10% deposit, regardless of the house price, from January 1st.

The requirement to have a 20% deposit for properties above €220,000 introduced in February 2015 is being done away with in an effort to help people looking to get a footing on the property ladder.

IBEC says the Central Bank's review of its mortgage deposit rules will bring more certainty to the market.

Its property group, Property Industry Ireland, said that the move will mean that the level of demand will be clearer and this certainty will improve supply.

PA

"The introduction of mortgage lending rules was a welcome addition to the country’s lending regulations, but were brought in at a level that was overly restrictive on buyers," said Dr David Duffy, Director of Property Industry Ireland.

He added that the "announcement coupled with the announcement in Budget 2017 of a Help-to-Buy rebate, will help first-time buyers meet their deposit requirements and give home builders clarity on demand. It is however disappointing that there has been no reform of the loan-to-income restrictions, which we hope the Central Bank will keep under review."

Caution

However, Dr John McCartney, an economist and director of research at Savills Ireland, has warned that the rule changes could accelerate price increases: 

"Over the next 12 months we will see prices rising because, although today's announcement... is only a sort of minor tweaking of these mortgage rules... when you combine it with the Help-to-Buy, it is pretty significant.

"And of course we have to remember that some banks are offering cashback deals which make life easier for first-time buyers as well. We're going to see more competition from these first-time buyers and that's going to drive prices."

Speaking as the rule changes were announced, Central Bank Governor Philip Lane said that he will take action if prices shoot up:

"If we see that there’s a perverse, unwelcome interaction between excessively rapid lending and excessively rapid increases in house prices, then we can intervene."

Taoiseach Enda Kenny has backed the move, and noted that the Central Bank will be examining its impact in the months ahead:

"I welcome the decision of the Central Bank. Obviously they've made it perfectly clear that they will continue to monitor these conditions very carefully in the hope that they level the opportunity for people to be able to get on the housing ladder without walking over a cliff."

Opposition reaction

Fianna Fáil Spokesperson on Finance, Michael McGrath has cautiously welcomed the changes to the mortgage rules:

"A 10% deposit requirement for first time buyers is, in and of itself, fair and reasonable in our view. The truth is that many prospective first time buyers are, at present, paying massive rents in the private market, and are finding it incredibly difficult to save the required deposit to buy a home."

"The big losers in this review are the non-first time buyers who will continue to need a 20% deposit after selling their existing home and clearing the mortgage. This is a very high bar for them to reach and will result in many families being trapped in houses or apartments that are unsuitable to their present or, indeed, future needs," Mr McGrath said in a statement.

Sinn Féin Finance spokesperson Pearse Doherty has said the changes to the mortgage rules announced by the Central Bank have made the Government’s "ill-thought out" Help-to-Buy scheme redundant:

"Today’s changes to the mortgage lending rules have torpedoed the government plan for a Help-to-Buy Scheme. The scheme was already in serious trouble with the government having to accept a review in a year’s time. Today, that review and the whole scheme have been made completely redundant.

"The Government has repeatedly made it clear that the rationale for such a scheme was to assist first time buyers reaching the minimum deposit required under the Central Bank rules," he added.