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U-turns are fine if property mess is straightened out

Sometimes a U-turn makes perfect sense. Margaret Thatcher tried to make it a dirty word when she told the British people: "You turn if you want to, the lady's not for turning."

The renowned economist John Maynard Keynes took a more flexible attitude by declaring: "When the facts change, I change my mind - what do you do, sir?"

So the Governor of t he Central Bank of Ireland, Patrick Honohan, deserves kudos for signalling a U-turn over the Central Bank's new mortgage rules that were scheduled to begin in January. The plans unveiled last month would mean that any first-time buyer without a 20pc deposit in their back pocket might as well not bother filling out the form.

That provoked cries of protest across the political system - and to his credit, it looks as if the governor is prepared to listen.

Like the road to hell, the Central Bank's proposals are full of good intentions. As we all know to our cost, the Celtic Tiger was destroyed by lunatic bankers who assumed that Ireland's property party would be the first in history not to end with a hangover. Not only did house-buyers have 100pc mortgages shoved in their faces, they were encouraged to borrow even more money and furnish the place in style.

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The Central Bank's 20pc deposit rule is clearly designed to cut out all that madness. Unfortunately, the cure might be even worse than the disease.

Thanks to a dramatic 25pc increase over the past 12 months, the average price of a Dublin house is now roughly €250,000. In other words, anyone trying to buy their first home would need to save a whopping €50,000 before the bank could even talk to them.

After six years of austerity budgets, falling salaries and extra taxes, that is not just unrealistic - it is also downright cruel.

Honohan's remarks over the weekend show that he is looking for some sort of compromise. He has given a guarded welcome to the Government's proposed new mortgage insurance scheme, which would allow a third party to insure 10pc of the house price and give the purchaser some desperately needed breathing space.

However, the governor is also warning that this arrangement will have to be carefully regulated - because the US tried something similar and it helped to create a global financial crash in 2008.

All of this chopping and changing proves one depressing fact. Ireland's economy may be slowly recovering, but our housing market remains in a complete mess.

Unlike the porridge in Goldilocks and the Three Bears, it seems to be always too hot or too cold - and never just right.

Everyone agrees that the property meltdown between 2008 and 2012 was a national tragedy, wiping out 50pc of the market's value and leaving mortgage-holders with debts they may never be able to repay. What some politicians fail to appreciate is that rapidly rising house prices can be just as dangerous.

They lock many families out of the system, forcing them to rent shoebox apartments that are totally unsuitable for children - and in the long run create another bubble that will impoverish another generation.

Patrick Honohan has built his reputation as a rock of common sense. As the Jean-Claude Trichet letters reminded us last week, it was he who cut through Brian Cowen's spin back in 2010 and confirmed that Ireland needed an international bailout.

Fixing our crazy property market is now the Central Bank governor's biggest challenge of all. Nobody will mind if he takes a few U-turns as long as they bring us to a better place.


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