The Central Bank says a mortgage insurance scheme could be dangerous to the property market if it is run by the State.
It has warned that any state-backed insurance scheme could leave the government footing major losses in the case of another recession.
The government has floated the idea of an insurance scheme to make it easier to get mortgages, especially following the introduction of new rules on mortgage lending.
In a paper this morning the bank says the property market itself could be destabilised if a single insurer was forced to step in after a mass default by mortgage holders.
In their economic letter on 'Mortgage insurance in an Irish context', the author writes "the experience of other countries shows that MI can play a role in supporting a well-functioning mortgage market, for example by diversifying risks and bringing in new sources of capital."
However the Central Bank also warns that "there is scope for consumer protection issues to arise from the conflict of interest which is embedded in the payment structure of MI products."
You can read the full letter here.
New mortgage rules mean banks will only be able to lend a maximum of 80% of the value of a home to buyers - while first time buyers will be allowed to borrow up to 90% to a limit of €220,000.
