Lenient property loan rules risk surge in prices

Central Bank rules making it easier for renters to buy homes risk inadvertently causing a fresh house prices surge if they occur alongside the Government’s previously announced help-to-buy tax break scheme, it has been claimed.

The concern was raised by opposition parties last night, despite housing, construction and finance groups saying both measures are badly needed to help people trapped in the rental market.

Under plans announced by Central Bank governor Philip Lane, first-time buyers will now only have to save 10% of the cost of their new home to receive a mortgage.

The new rule, which begins on January 1, 2017, replaces a previous system announced two years ago requiring first-time buyers to save 10% of the price of a home up to €220,000 and 20% of costs higher than this rate.

While the plan — which the Central Bank last night insisted has not been caused by Government pressure — is still limited by the fact the vast majority of home hunters will only be able to obtain a mortgage 3.5 times their income, it is specifically designed to help first-time buyers meet existing mortgage requirements.

However, opposition parties last night sounded a note of caution, saying while the measure is well-intended, it risks raising prices unless closely monitored.

The move could inadvertently cause a fresh surge in house prices if it is introduced alongside the existing Government help-to-buy scheme, which was introduced in last month’s budget and will give first-time buyers of new build homes tax rebates worth up to €20,000 on the first €400,000 of a home’s price.

“I have genuine concerns about the combined impact and effect on the price of new homes from the new deposit rules,” Fianna Fáil finance spokesperson Michael McGrath said last night.

“Under the existing mortgage rules, and before help-to-buy, a first-time purchaser buying a new home for €250,000 has to come up with a deposit of €28,000.

“Under the new rules and including help-to-buy, their new deposit is €12,500, a reduction of €15,500. With a very limited supply of new homes at present, there is considerable risk of further house price inflation,” he said.

The position was repeated by Sinn Féin finance spokesperson Pearse Doherty and Labour counterpart Joan Burton, who similarly said while any help for first-time buyers facing “record rent levels” is welcome, “questions now have to be asked whether the introduction of the help-to-buy scheme for new builds will lead to house price inflation that will directly benefit developers”.

The Department of Finance and the Central Bank yesterday said the rent-to-buy scheme will work in tandem with the new mortgage rules, while Taoiseach Enda Kenny stressed the aim is to help people “get on the property ladder without going over a cliff”.

However, amid concerns over the potential unintended consequences, Central Bank governor Philip Lane confirmed the new mortgage rules will be reviewed annually and he will intervene “if there is a rapid increase in house prices” while Finance Minister Michael Noonan said he will also review the help-to-buy scheme next September.

Despite the criticism — which includes claims that existing home owners living in negative equity are the “big losers” as they will not benefit, concerns rental history has not been given more influence, and fresh calls for the 3.5 times a person’s income mortgage limit be changed — housing industry groups last night welcomed the new mortgage rules.

Medikids said the plan provides “much-needed assistance” to first-time buyers.

The Institute of Professional Auctioneers and Valuers said it would give a boost to the housing market, and the Construction Industry Federation said it will help buyers and the wider industry.

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