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Friday 15 December 2017

Dan White: Credit Unions must be hauled over the coals on loan plans

Central Bank Governor Patrick Honohan
Central Bank Governor Patrick Honohan

The Central Bank must crack down hard on any credit unions which try to help homebuyers circumvent its tough new lending criteria.

The Central Bank introduced strict new mortgage lending rules last month. Most homebuyers will now have to save a 20pc deposit and will be restricted to borrowing three-and-a-half times their income. The only exception is for first-time buyers who will only a need a 10pc deposit on loans up to €220,000.

These restrictions are already having an impact with average Dublin house prices flat in November and December, having risen by almost a quarter in the previous twelve months.

Now we learn that the credit unions, who were bailed out by the taxpayer to the tune of €250m in 2012, are planning to drive a coach and horses through the new regulations.

Credit unions will lend money to homebuyers' parents - money which will then be used to fund a deposit on the purchase of a house or apartment.

Having written continuously about the Irish financial meltdown for the past seven years, I thought that I had lost the capacity to be surprised.

At a time when a quarter of the country's credit unions are subject to Central Bank-imposed lending restrictions and several credit unions have had to be rescued by the Central Bank, the notion that these self-same lending institutions are planning to engage in lending whose explicit purpose is to assist borrowers or their offspring to side-step perfectly sensible Central Bank mortgage lending restrictions, is utterly outrageous.

Honestly, you couldn't make this stuff up!

The Central Bank introduced the new mortgage lending rules for perfectly good reasons. Having been rightly criticised for not reining in lenders during the Celtic Tiger housing bubble, it would have been failing to do its job if it hadn't acted at a time when Dublin house prices were rising at an annual rate of 24pc. If that's not a bubble then tell me what is.

Ever since the Central Bank announced its plans for income caps and higher deposits on mortgage lending last October, the banks and the property lobby have mounted an intense campaign to get them scrapped or watered down.

We have been deluged with sob stories of first-time buyers being unable to afford the home of their dreams and "not being able to get on the property ladder".

bubble

Strangely, opponents of the new rules have had far less to say about their apparent success in pricking an incipient house price bubble.

To his eternal credit Central Bank boss Patrick Honohan has turned a diplomatic ear to this outpouring of nonsense.

Instead, he kept his nerve, defying his political masters in process, and brought the new rules into force last month. The only minor concession he made was cutting the deposit requirement for most first-time buyers from 20pc to 10pc.

Now that the new mortgage lending rules are in operation, the campaign of opposition has mutated.

It was always on the cards that lenders would seek to find ways of getting around the deposit and income restrictions. If the credit unions are allowed to do as they are proposing, the banks will surely follow.

This must not be allowed to happen. The credit union plans to lend the deposit money to homebuyers' parents represent a direct challenge to the Central Bank's authority. The Central Bank must meet this challenge head-on.

It should haul in the credit unions and their representative bodies and tell them in no uncertain terms that it will come down like a ton of bricks on any credit union foolish enough to step out of line and advance these loans.

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