Sunday 22 October 2017

ESRI says mortgage rules stifle the market

Institute say measures are premature
Institute say measures are premature

THE Economic and Social Research Institute (ESRI) has criticised Central Bank rules on mortgage lending, saying the measures are premature and will stifle the housing market.

The think-tank said the measures will dent the supply of housing and the rise in prices, and potentially drive up rents.

It also predicted the rules may cause mortgage lending to slump by up to a fifth.

While it agrees with the idea of mortgage deposit rules in principle to cool an overheated market, the ESRI said the timing was wrong.

"We don't think the measures should be there, or certainly not there at this point in time," said Kieran McQuinn, co-author of the ESRI's spring economic commentary, published today.

Mr McQuinn said the ESRI welcomed the so-called macro-prudential regulations in theory.

"We still think the market is undervalued. That same analysis [used] in 2006 and 2007 showed that the market was overvalued."

The new rules stipulate borrowings by first-time buyers up to €220,000 will be approved with a deposit of as little as 10pc.

But any amount over €220,000 will require a 20pc deposit for that portion of the mortgage. Non first-time buyers will have to come up with a 20pc deposit.

But the ESRI also said first-time buyers should have been treated the same as other borrowers, dismissing the Central Bank's argument that first-time buyers are a less risky proposition for banks.

"A wide number of studies … conclude that when credit conditions are liberalised it is relatively younger and poorer households who tend to 'benefit' from greater credit provision," the ESRI said.

negative

The think-tank said first-time buyers are more likely to be in negative equity, and stated that more than 79pc of first-time buyers who drew down a mortgage between 2005 and 2012 were in negative equity.

Unemployment will fall to below 10pc this year for the first time in seven years, the ESRI has forecast.

In its latest economic commentary, the think-tank said the jobless rate will drop to 9.7pc this year, before falling further to 8.4pc in 2016.

hnews@herald.ie

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