CIF: changes to mortgage rules could alleviate supply problems and provide homes for first-time buyers

Average couples face choice between daily commute or higher rents as they are unable to secure mortgages.

The Construction Industry Federation has made a submission to the Central Bank’s review of its macro-prudential mortgage rules today. The body recommended changes to the rules that would increase the size of mortgages available to young couples with a strong track record of paying rent. Their belief is that this cohort of home-buyers has proof of income to service a mortgage where repayments may be equivalent to rents paid.

Hubert Fitzpatrick, director of the Irish Home Builders Association, the CIF body representing house-builders said:

“Whilst we agree with the need for a macro-prudential framework, due to chronic lack of houses for this cohort today, the Central Bank rules exclude many young couples who can service larger mortgages from purchasing their first homes. This is leading to a number of well-publicised knock on effects such as pressure on the social housing list, a lack of housebuilding activity, rising rents in Dublin and unfortunate levels of homelessness across Ireland.”

Our research indicates that an average couple, a teacher and a guard with 5 years’ experience each will fall short of being able to secure a mortgage for the average house in Dublin. Together they will earn approximately €75,000, meaning that they will not be able to secure a mortgage for the average Dublin home (€330,000 according to the SCSI) due to the Loan to Income level of 3.5 times their salaries.

This couple is then faced with the choice of staying in Dublin and continuing to pay high levels of rent or purchasing a home outside Dublin and facing a daily commute.

If they decide to secure a home outside Dublin for around €300,000. The deposit of this house will cost them €38,000. It will take them 3 years to save this deposit if they put away €1000 per month. This will be almost impossible whilst also paying rent of around €1200.
The CIF believes that the Central Bank can safely allow this couple a mortgage on the basis that repayments are likely to be around €1300. These are first time buyers with good jobs who can afford to service a mortgage but can’t secure a sufficient amount to afford a starter home at the current price levels in GDA.

Our suggested tweaks to the Central Bank’s prudential rules will make homes affordable again for this cohort of first-time buyers. Getting those people who wish to buy a home, and can afford it, onto the property ladder may alleviate pressure on social housing, rents and homelessness particularly in Dublin.

Finally, the resultant modest increase in mortgage approvals should stimulate supply as banks will begin to lend again to house-builders. This will protect the banks and ensure credit levels are within acceptable parameters.

The CIF believes that these measures, taken in conjunction with Minister Coveney’s Action Plan on Housing and a Help to Buy equity scheme will connect supply and demand in a sustainable way over the next two years. Taken together these three measures will ensure that people who want to purchase homes have the means to do so whilst ensuring there is a supply of affordable, quality homes in vibrant communities across Ireland.

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For more information, contact:

Rosalind Travers: 087 100 10 39 / [email protected]