Data on mortgage exceptions

[Brendan Burgess]

Data on New Mortgage Lending I Central Bank of Ireland | Central Bank of Ireland

The Central Bank's mortgage market measures are aimed at enhancing the resilience of both borrowers and the banking sector. The measures set limits on the size of mortgages that consumers can borrow through the use of loan-to-value (LTV) and loan-to-income (LTI) limits.

www.centralbank.ie

First time Buyers get very few exceptions over 90% LTV

The banks are allowed to give 20% exceptions to the 3.5 times Loan to Income limit, but use up only 10% of this!

 

[Brendan Burgess]

Second time buyers - again very few loans over 90% LTV but 10% just at 90%

Not that many over 3.5 times income

 

[Brendan Burgess]

It's interesting the calls for the 3.5 times limit to be increased for FTBs.

The lenders can give 20% exceptions.

But based on these tables, they are using only half the exceptions available to them. It's the same for the whole of 2019 and 2020.

So the banks are stricter than the CB rules!

 

[Jim2007]

And here we go again.... Are the banks actually in a position to even go as far as the CB rules would allow? What would the impact be on their T1 ratios or their adherence to Basel III be if they tried? There are many criteria that influence banking behaviour and you have not even addressed one of them. You don't even consider if the banks have an adequate capital structure to avail of the rules allowed by the CB.

 

[NoRegretsCoyote]

I'm on the mobile so could be mistaken here. But I think the numbers above are volumes of mortgages drawn down. While the exemptions relate to total value of mortgage lending in the period

Exemption mortgages are almost by definition bigger than average so a lender could use up its 20% by total value but these loans as a share of its volume of mortgages granted will be well below 20%.

Am I missing something?

 

[Brendan Burgess]

Hi Coyote

You are correct in that it's based on value:

• Up to 20% of the value of mortgages to first-time buyers

So if a lender is giving out 10 mortgages at an average of €300k each or €3m, they can lend €600k at Loan to Income exceptions.

So if they give one of the ten a €600k mortgage, only 10% of the borrowers are getting exceptions.

And as you say, the exceptions are likely to be larger than the average.

But I think that might only account for a very small part of the difference. If it were 18% by number and 20% by value, that would be fine.

But only 1.3% of all mortgages were over 4 times Loan to Income.

It seems clear to me that the banks are more conservative than the Central Bank rules allow.

But I have asked the Central Bank if they know the actual percentage of loans.

Brendan

 

[Brendan Burgess]

I wonder could it be a timing issue?

For example, if I am a good mark for an exception, and I get AIP from 4 lenders, does not upset the figures? I know that the lenders were scared of exceeding the limits a few years ago. And the rules were changed recently to accommodate that.

Brendan

 

[NoRegretsCoyote]

But I think that might only account for a very small part of the difference. If it were 18% by number and 20% by value, that would be fine.

Intuitively I don't think the effect will be that small. I suspect people getting exemptions have much higher than average incomes, as banks calculate that they will have more room to manouvre if things go wrong than people on lower incomes.

There is CBI previous research on this that I will dig up at a later point.