Ireland Eases Mortgage Cap Plan to Help First-Time Buyers

Ireland’s central bank scaled back plans to limit mortgages amid political pressure to aid first-time home buyers as the nation recovers from a real estate collapse.

First-time buyers will be allowed to borrow as much as 90 percent of a property valued at up to 220,000 euros ($250,000), the central bank said in a statement late on Tuesday in Dublin. In October, the bank proposed an 80 percent limit for most new mortgage loans.

“At the cost of additional complexity, but without compromising the overall effectiveness of the measures, we are increasing the limit for first-time buyers of lower-cost houses,” Central Bank Governor Patrick Honohan said in the statement.

The central bank’s initial proposals to temper a resurgent housing market plan drew criticism from politicians and bankers. Opponents said that caps would squeeze out first-time buyers as home prices rebound from a real estate crash in 2008 amid a record lack of supply of new properties. The average asking price for a home in Dublin was about 269,000 euros at the end of last year, according to website Myhome.ie.

Legislation Planned

“The new rules will enhance Irish banks’ financial stability by leaving them better positioned to withstand future potential property swings,” Ciaran Callaghan, an analyst in Dublin with Merrion Capital, said in an e-mail. “Focus is now likely to turn to government initiatives and reforms to help improve the supply of housing stock.”

Legislation on the new rules will be introduced “in the coming weeks,” the central bank said. Honohan said in an interview with state-owned broadcaster RTE that the new rules will take effect “within days” after legislation is introduced in Parliament.

Honohan stuck to his original plan elsewhere in the housing market. Most of those who are not first-time buyers must put down a minimum 20 percent, the central bank said.

Banks may breach the caps for no more than 15 percent of their annual mortgage lending.

“The fact that a more nuanced approach with restrictions to be phased in over a period of time was ignored will be a disappointment to many,” said Ryan McGrath, a Dublin-based analyst with Cantor Fitzgerald LP, which is a primary dealer in Irish government debt.

Home Prices

Honohan, 65, became head of the Irish central bank in 2009, just as the nation’s housing market was collapsing after a decade-long bubble. The fall of the property industry prompted the country to seek a 67.5 billion-euro bailout in 2010 to help prop up the banks that had helped fuel the boom with credit.

“It’s stopping a boom and preventing that credit-chasing-prices-chasing-credit kind of bubble that we’re trying to ensure,” Honohan said in the RTE interview, which was taped Tuesday night and aired Wednesday. “First-time buyers of the smaller houses never caused a boom.”

Dublin home prices rose 22 percent in November from a year earlier, while values nationwide increased 16 percent, according to the Central Statistics Office. Prices in the Irish capital remain 38 percent below their 2007 peak.

“The modified limits will still apply to the most frothy areas in Dublin, helping to contain house price inflation in the capital,” said Conall Mac Coille, chief economist at Davy, the country’s largest securities firm.

The central bank stuck to its original proposal to restrict loans in excess of 3.5 times borrowers’ income to no more than 20 percent of a bank’s new loans. It also adhered to a plan that borrowers in negative equity be exempt from some limits when seeking a new loan.

Keeping the loan-to-income limit “should guard against house price inflation getting out of control,” said Mac Coille.

No more than 10 percent of future buy-to-let lending may be for in excess of 70 percent of a property’s value, the central bank said.

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