Blog – McCarthy & Associates – Galway Talks, 09/10/2014

mortgageIssue:  Central Bank moves to curb mortgage lending.

Comment:  I have to say that the recent announcement the Central Bank in relation to Mortgages, defies belief.  By their own admission, they stated that there is no credit bubble and that mortgage lending is well below normal levels.  Why they have taken this action now can be answered by fact, that they seem to be running scared of the increase in property prices particularly in Dublin.

There are a number of things to understand about the property market:-

  • There is plenty of evidence to back up the claim, that a considerable number of first time buyers, who are currently renting, wish to buy their own home.  This evidence also proves the point that a lot of these people, who in normal times should be able to get a mortgage, are unable to do so.  So therefore bringing in restrictive lending practices is going to make the availability of mortgages even worse.
  • There has been a clamor of calls to increase supply, particularly in Dublin.  It is generally agreed that this is the issue which is driving prices.  How the Central Bank could believe that their move will help this issue remains anybodies guess.  The first-time buyer is the most important element of the market as they help to ‘lift all boats’.  Builders may find it more difficult to get finance to build new homes, as a result of these regulations, due to the fact that their potential purchasers may not be able to get finance.  For those builders who are considering developments, they may either scale back their plans or construct properties for purchasers who are trading up.
  • The rental market is choked at present with under supply.  This situation will continue until such time as people who are renting, are able to purchase their own home.  Obviously, this will ensure that rents will continue to rise.  One can only imagine the frustration of prospective buyers, who have worked hard to save a 10% deposit over the last few years and now find themselves in a situation where they have to come up with 20%. 

It is my firm belief that this is the wrong move at the wrong time by the Central Bank.  The negativity it has introduced into the market, at a crucial time, is inappropriate in the extreme.  They seem to be contradicting all their own commentary about the property market over the last 12 months, by what they have done.  I can only assume that there may be an element of political motivation by the bank with this announcement, due to the fact they were so heavily criticized for their inaction prior to the downturn.

On a final point, it is shocking to witness the lack of commentary from politicians about this announcement.  One can only assume that they are scared of publicly voicing any criticism of the Central Bank.

This development will cool prices in the short term, but only time will show the real effect it will have on a fragile property market.