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Fianna Fil submission to the Central Bank on mortgage lending rules

Conditions for first time home buyers have deteriorated in recent times with the abolition of mortgage
interest relief, a sharp rise in house prices and rising standard variable rates. Tax incentives have
also disadvantaged owner occupiers relative to investors. Prudent lending practices and the capacity
to withstand economic or property market shocks without financial upheaval are essential for our
economic wellbeing. It is our belief that the rules that emerge from this process should take account
of both the social and economic needs of the country.
Impact of Minimum 20% deposit rule
Based on the Central Banks proposals, most first-time buyers would need a deposit of 50,000 in
Dublin, or 30,000 outside Dublin. Starting from scratch, if they could afford to save 500 a month, it
would take ten years to acquire the deposit assuming no further increases in house prices. By
contrast, in the past 12 months, house prices in Dublin have risen by an average of 5,000 a month.
Recommendation 1: The minimum deposit for residential home loans should be set at 10%-12%, with
any further increase only occurring after a detailed examination of the impact of this initial change.
Recommendation 2: If the Central Bank proceeds with the current proposals, new rules on the
minimum deposit required for residential borrowers should be phased in over an 18 month period so
as not to create a sudden dislocation in the mortgage market.
Recommendation 3: First-time buyers should be required to demonstrate that they have not acquired
the required deposit by means of obtaining expensive short term credit.
Recommendation 4: The maximum term for a residential mortgage should be set at 30 years.
Loan to income rules
The proposed rule in the Central Bank consultation document suggests that owner occupier loans
above 3.5 times loan to income cannot be more than 20% of the value of all home loans. Some form
of affordability test is certainly appropriate though a simple loan to income test does not reflect the
complexity of household spending patterns.
Recommendation 5: Affordability rules should be based on net disposable income and not simply a
loan to income multiple.
Buy to let investors
The interests of people in the rental sector and wider society will best be served by the establishment
of a professional long term focused landlord sector.
Recommendation 6: The same rules as apply to individuals purchasing a buy to let property should
also apply to institutional investors including private equity funds.
Overall banking sector exposure to credit
Recommendation 7: Banks should be limited in relation to their overall exposure to property related
lending taking in to account mortgage lending and developed finance.
Improving supply of suitable housing
There is an acute shortage of family homes particularly in the Dublin area. Apart from adding to the
overall stock of housing action can be taken to match housing with peoples current needs.
Recommendation 8: A concurrent strategy to ensure a stable supply of new suitable housing units is
needed to ensure further dislocation does not occur in the housing market. This should include
measures to assist couple who wish to trade down.

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