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Central Bank rules remain unchanged

After much speculation the Central Bank lending rules are to remain unchanged for 2020 and quite possibly, for some years ahead. The news was announced this week, to a mixed response, after the government appealed for a review into the lending rules. The Central Bank resisted the pressure to change or relax the rules on the basis that it is in the best interests of the wider economy not to change them. In effect, this means that mortgage applicants will continue to be limited to borrowing 3.5 times their salary, and will require between 10% to 20% cash deposit (with a small number of exceptions).

The government – and much of the development industry – was hoping for more relaxed lending rules to help ready first-time buyers to purchase a new home instead of continuing to pay high rents. Rent in Ireland has reached record highs and, according to, rent prices around the country rose by an average 5.2% to €1,403 over the past 12 months. The average rent in Dublin at the moment is €2,044 (up 3.9%),  while Cork continues to have the second highest rents in the country at €1,372 per month (up 5.5%).

The Central Bank brought in the lending restrictions back in 2015 when such changes were needed in order to get the economy back on track. The measures were adopted to avoid unsustainable housing loans that were seen in the Celtic Tiger years. The Central Bank wanted to ensure people did not over-borrow and that banks did not over-lend, at that time. According to the Central Bank, the measures put in place continue to meet the objectives of strengthening bank and borrower sustainability. The financial regulator went further to state that the loan-to-income and loan-to-value measures are still required and therefore, they will not be changed in 2020. The Central Bank claims the rules are not meant to target house prices but they estimate that without the restrictions, house prices this year would have been 15% to 25% higher than they currently are.

Reacting to the news, the Construction Industry Federation (CIF) said the refusal to make mortgage lending changes in the next 12 months could lead to the return of ghost estates, as reported in the Irish Examiner this week. The CIF reported that developers are seeing a slow down in demand due to potential buyers being “locked out of the market”. The fear is that these lending rules are affecting house building, however, the Central Bank maintains that the housing market is suffering from supply issues, not lending problems.

The decision not to change the restrictions is likely to come as a disappointment to some prospective buyers who had been hoping for some relaxation in order to enable them to borrow funds they require to make a purchase.