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Ireland relaxes crisis-era mortgage rules

Ireland’s central bank has relaxed rules for first-time buyers despite rising mortgage costs and concerns that it will only lead to higher prices and aggravate the country’s housing crisis.

From January, first-time buyers will be able to borrow up to four times their gross income, up from 3.5 times under the current rules.

The move, which follows a year-long review, was a “reasonable” recalibration of measures that had been in place since 2015, central bank governor Gabriel Makhlouf said. Those measures were a response to a credit-driven property bubble that burst in 2008 and crashed the economy.

Ireland’s rules remain strict by international standards and measures restricting first-time buyers to 90 per cent of the property’s value, or 70 per cent in the case of buy-to-let purchasers, will remain in place.

Ireland is struggling with a deep housing crisis driven by insufficient supply and high prices that make it difficult both to rent and to buy.

According to a quarterly report by estate agents, average Irish home prices were 7.7 per cent higher in the third quarter than a year ago, with the average listing price now €311,514, based on a weighted average across all property types and locations. The average listing price is more than seven times the average median annual wage.

Makhlouf told a news conference that, without taking other factors into consideration, “there will be a modest effect on house prices”.

However, he insisted there was no danger of runaway prices sparking a crisis that could endanger the economy. “The review has concluded that while house prices have grown since 2015, the credit-fuelled element, where lending and property prices chase each other upwards in an unsustainable loop, has not been a driving force,” Makhlouf said.

Ireland’s economy and financial system were healthier than in 2015 and better able to withstand shocks, the governor added. “The central bank is not going to start to make decisions that threaten financial stability.”

The European Central Bank, which sets interest rates across the eurozone, raised borrowing costs by 125 basis points over the summer to 0.75 per cent. It is expected to raise rates by another 75bp next Thursday.

Michael Dowling, managing director of mortgage specialists Dowling Financial, told RTÉ radio: “I don’t think [the measures] are going to increase house prices in an environment where interest rates are rising.”

Irish mortgage lenders have begun raising mortgage rates — most by some 0.5 points — on the back of the ECB decisions.

Dermot O’Leary, chief economist at stockbrokers Goodbody, estimated that a couple earning a combined €80,000 and with a mortgage of €320,000 could end up paying more than 35 per cent of their income on repayments under the new rules if interest rates go up by 3 percentage points.

But Pearse Doherty, finance spokesman for Sinn Féin, the nationalist political party that is topping the polls in Ireland on its commitment to fixing the housing crisis, said the policy would lead to higher indebtedness and rising house prices — while the problem of there being too few homes would remain.

“The concern here is by allowing people — even a small number of people — to borrow more, because there’s a small number of homes available, then it pushes up house prices because everybody has the ability to borrow that extra €30,000 or €40,000,” Doherty told RTÉ. “Everybody now just has more money in their pockets to chase the same and outbid the same type of houses.”

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