New Housing Loan Regulations in Ireland

On January 27, 2015, after three months of consultation, the Central Bank of Ireland announced the introduction of new regulations relating to housing loans in an effort to prevent another property bubble arising. These regulations establish loan and income limits: loan-to-value of 80 per cent of the property and three and a half times income. There is a concession for first-time purchasers of ninety per cent for a property costing €220,000 or less; for amounts over that figure a deposit of 20 per cent is required. The average price of a home in Dublin in 2014 was €260,000, which will now require a first-time buyer to have a deposit of €30,000.

Up to the twenty-first century, Irish banks generally restricted house loans to ninety per cent of value and two and a half times income. During the first decade of the twenty-first century, the banks became self-regulating. Fuelled by cheap credit and light touch regulation, Irish banks engaged in reckless lending, giving a 100 per cent loans and in some cases even more. Their loan balances increased from €150 billion in 2003 to €440 billion in 2008, a huge increase, with most of it going into property. This was a major factor in causing the economic, banking and fiscal collapse in 2008, and the great recession that followed, with a huge increase in unemployment, decreased incomes and high emigration. Property prices fell by about fifty per cent from the peak of the boom. After house prices increased by 23 per cent in Dublin and by 16.3 nationally in 2014, the Central Bank decided to take action to curtail this trend.

A contributing factor to the increase is a lack of supply in certain areas, especially in Dublin. The new regulations will not increase supply, but they will help to curtail increases in house prices. Many first-time purchasers will find it difficult to meet the new requirements. Young couples on average incomes with rental and childcare costs will find it very difficult to save the new deposits. The supply of rental accommodation is also declining. The Irish rental market is chiefly composed of a multiplicity of small suppliers in contrast to the situation in many countries where big institutions are landlords. There is a danger that many young couples could be forced into social housing at extra cost to the State. The new regulations will require careful monitoring to ensure that they are not socially regressive, with many excluded from the property market unless they have benefactors like well-off parents

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