Central Bank decides against changing mortgage limits

NoRegretsCoyote said:

Central Bank's own research shows 10% of mortgages are above the limit, namely between 3.51 and 4.5 LTI. As much as 17% are between the very narrow interval of 3.45 and 3.5! This 3.5 number is really, really binding in practice.

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How binding the rules are shouldn't be a factor in the decision making process. While parts of the housing market are dysfunctional the part whereby estate agents extract the most they can from a purchaser works very well.

Change the rules and they will be binding very quickly

PGF2016 said:

What's stopping developers from putting up prices to a level that will incentivize them to build new homes?

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Are there sufficient numbers of potential buyers with the ability to finance those purchases at higher prices?

If not, then the demand doesn't exist at those higher prices.

NoRegretsCoyote said:

But they are much more binding now with 2.5% interest rates than in 2015 when interest rates were more like 3.5%.

So the rules were either prudent in 2015 but conservative now. Or they were loose in 2015 but prudent now.

It can't be both.

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Your forgetting that Ireland is predominately a floating rate mortgage market or at best short-term fixed (3-5yrs)…….so in an equation where your trying to determine a prudent lending model …….where X is income and Y is interest rates……and Y (interest rates) can move all over the place over time and you the sovereign have ZERO control over those rates……..well the only prudent thing to do is attach your model to X (income) which is stable or growing over time……hence why loan-to-Income is the only way to construct a prudent lending framework In Ireland.

If the central bank wanted to introduce flexibility I would agree with moving to a lending model for 30 year fixed rate mortgages ONLY where you could use disposable income to debt servicing ratios as your framework.

letitroll said:

Your forgetting that Ireland is predominately a floating rate mortgage market or at best short-term fixed (3-5yrs)

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Ireland is moving away from variable and towards fixed rate issuance, and longer and longer terms are available. Variable rates are not unknown in the rest of Europe either!

letitroll said:

If the central bank wanted to introduce flexibility I would agree with moving to a lending model for 30 year fixed rate mortgages ONLY where you could use disposable income to debt servicing ratios as your framework.

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I could agree here a bit. A higher debt-service-to-income level allowed if you fix for long.

The rarest commodity in the construction equation is suitable zoned land. There are a small number of big players that control most of it. Increasing the finance available to buyers by increasing borrowing income multiples will just increase the cost of the site rather than the margin available for the actual builder.

Increasing the income lending multiples will just increase the value of development land. Why build on it at all when it's an appreciating asset and you don't have to do a thing with it? Why bother with the cost and hassle of building?

The constraints here are land and labour. The State can fix both issues. They can introduce a property tax than is in fact a site value tax and they can levy it on all land which has been zoned as residential for more than a fixed period (24 months, 36 months etc). That will force zoned land onto the market. At the same time they can streamline the planning process.
Fixing the labour shortage is a bigger issue. Construction is hard and requires skilled Trades and, relative to many lower skilled jobs which require a 3rd level qualification, it is under paid. Folding Apprenticeships into the CAO system is a good start but attracting higher calibre students is also key, as is actually training them properly instead of just foisting the whole thing back on the employer.