Ireland South MEP Deirdre Clune has welcomed comments by the Governor of the Central Bank, Patrick Honohan, that he may consider a relaxation of the imposition of a 20% deposit rule on new mortgage applicants,
“I think the focus should always have been on proper stress tests of potential homeowners to see if they will be able to make payments well into the future. A 20% deposit requirement is open to abuse. What happens when someone borrows money from a family member to show they have the required 20% deposit to qualify them for mortgage approval? Would we have a scenario where those with well-off family members are at a distinct advantage? There are ways around this rule. It is over simplistic and unfair.
“Speculation that the Central Bank are considering a mortgage to income ratio of 3.5 times needs further clarification. Would that be based on joint incomes or single incomes and does it take account of people who are on rising career paths?
“Right now, the banks stress test applicants using the Central Bank dictated rule of a 2% addition to the variable rate to ensure that customers can continue to make payments in the event of a 2% increase in rates. Why not remove the requirement for a 20% deposit and increase the stress test application to 3% over the variable rate. This is the real test of a sustainable mortgage and is a more sensible solution and way forward for those who wish to own their own home.
“If the Central Bank carry on with their proposal to impose 20% mortgage deposits, then many young homebuyers will have to postpone buying until they have the necessary deposit saved. The value of the property, in particular in Dublin, may go up by between 10- 15% in this time, which adds to the mortgage costs in the long run.
“Nobody wants to see a return to the days of light touch regulation but we must ensure that regulation imposed by the Central Bank is sensible and fair to young people who are simply trying to own their own home.