Buyers need to change mortgage rules so they can afford a home, the central bank warns

Central bank governor Gabriel Makhlouf has been asked to allow people up to four and a half times their salary to help people who are currently “locked out” of the real estate market.

Adjusting mortgage loan rules will help ease soaring rental prices and ease future pension pressures, the Institute for Professional Auctioneers and Valuers (IPAV) has claimed.

In a letter to Mr. Makhlouf last month, IPAV chief executive Pat Davitt said concerns about mortgage regulations had escalated recently as people with average incomes were “effectively excluded from the property market.”

The loan-to-income scheme means people can currently only borrow up to three and a half times their annual salary.

Mr Davitt warned that young buyers with an income of $ 50,000 or less are entering middle age and finding fewer and fewer housing options as they age, and that it is becoming more difficult to get access to a 30-year mortgage.

He also predicted that the mortgage rules would have a serious impact on retirement planning.

The letter, viewed by the Sunday Independent, suggests adjusting the rules to improve access to the real estate market. Mr Davitt said this would also unlock sought-after rental housing, lower rents and reduce government spending on housing aid.

“According to the existing mortgage regulations, someone with an average wage of 45,000 euros can borrow a maximum of 157,500 euros, provided they have already saved 10 percent (17,500 euros) for a deposit. You can buy property up to a value of € 175,000 – but there are few properties at this level, ”wrote Davitt.

“If the central bank allows people with an income of up to 50,000 euros to borrow four and a half times their income, as opposed to the current three and a half times the gross salary, a person with an income of 45,000 euros could borrow 202,500 euros and a salary of 50,000 euros you could borrow 225,000 euros. “

He said such a move to raise credit limits would improve an average earner’s ability to buy a home.

Last year, data from the Central Statistical Office showed that the average annual income for full-time employees was € 48,946.

The letter cites data from Banking Payments and Federation of Ireland (BPFI) from 2019, according to which more than a third (36 percent) of first-time buyers earned more than 80,000 euros.

That figure was 15 percent in 2004 and 16 percent in 2016, showing that it is becoming increasingly difficult for low-income earners to gain access to the market.

“Buyers with an income of up to 50,000 euros in 2019 were 20 percent. Those with an income of up to 40,000 euros – the most common type of earner in the district – made up less than 10 percent, ”wrote Mr Davitt. “In 2012, those with an income of up to 50,000 euros made up almost 50 percent of the buyers and those with an income below 40,000 euros made up almost 30 percent of the buyers.”

Mr Davitt said the rules have long-term implications and compromise people’s financial independence due to “diminished or depleted financial strength resulting from not owning a home”.

He also warned that there are also ramifications for the state welfare system, which is based on the assumption that retired people have their own homes.

“An added benefit of more home ownership is that every time it happens it will open up an additional rental property to the market,” he added.

“The availability of such rental properties would not only help those members of the community who are struggling to find a suitable rental property, but most importantly, it would put pressure on rental prices.”

Earlier this year, Central Bank Deputy Governor Sharon Donnery said an analysis of mortgage measures showed that “house prices could have been about 25 percent higher in the past 12 months” had the rules not been in place.

Separately, an ESRI study earlier this year showed that without the rules, house prices would be 8.8 percent higher and there was “a mutually reinforcing relationship” between mortgage loans and house prices.

A central bank spokeswoman said she was reviewing the measures annually.

The central bank also previously announced that it is conducting a more comprehensive review of the overall framework for the mortgage measures, she added.

“The rapid rental growth in recent years reflects a fundamental imbalance between housing supply and demand,” she said.

“The most effective way to ensure rents become more affordable is to bring more properties to market in areas of highest demand.”

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