Househunters will not need a 20pc deposit when seeking a mortgage from January 1 because the Central Bank won’t meet its own deadline to enforce the new rule.
Plans to cap homeloans are to be pushed back but Central Bank Governor Patrick Honohan insisted “we’re not hanging around”.
He said that the bank is still determined to introduce the restrictions, adding that they “would ensure that a credit-driven property bubble doesn’t take hold again”.
The delay gives some breathing space after new figures showed that property prices jumped by 16pc in October alone.
Experts said the huge rise was linked to first-time buyers scrambling to get into the market before the New Year.
Mr Honohan warned yesterday that sharp house price jumps of 42pc in Dublin in just 18 months could “sow the seeds of trouble for the future” unless a new regime was in place.
“We’d like to get these (changes) into effect as soon in the New Year as possible,” he said.
“We wanted to have a proper consultation period on it. I’m not sure we’ll be able to get them into effect by January 1, but we’re not hanging around.”
There are also proposals to limit the size of a mortgage to three-and-a-half times a family’s income, which is less controversial.
The plan is going through a consultation process that is due to end on December 8.
Mr Honohan told an Oireachtas Committee yesterday that the move would affect only a “relatively small number of people”. He said that last year, the number of loans of more than 80pc to first-time buyers was 2,800.
“That’s the number of loans that would have been affected. It’s not like hundreds of thousands of people are affected by this,” he said.
“It’s not as if the banks were there giving lots of loans, they were not giving loans, and that is why this is a good time to introduce this because you’re in a situation where any effects are on a relatively small number of people.”
But he also signalled that Dame Street may row back on certain elements of the plan.
“After making any appropriate refinements, for example, in relation to first-time buyers, and to the potential future use of private mortgage insurance as floated in the consultation paper, we will move quickly to confirm the parameters of the standing regime.”
He later said that a mortgage insurance scheme, either a publicly guaranteed one or a private one, “might not be the way to go”. But the Oireachtas Finance Committee will be told today that banks would have the leeway to slash the interest rates they charge on new mortgages if they opted to take out insurance on new home loans. Cuts of up to 2pc in mortgage rates could be delivered, saving first-time buyers up to €2,500 over a year.
And a mortgage guarantee scheme would avoid first-time buyers having to come up with deposits of up to 20pc of the value of the property.
Joe Leddin of international insurance broker JLT is to tell the Committee that the Central Bank plan is a “crude” instrument that won’t encourage new building and will exacerbate the problems in the market.
New data yesterday showed that property prices continued to rise strongly across the country and particularly in Dublin.
“We’ve got to do something. We need to put something in place for the long-term. If we don’t do it now, we’ll never do it,” Mr Honohan said.
He also admitted that he believed variable interest rates being offered by banks were “on the high side”, but he cautioned against giving the Central Bank powers to intervene.
“I don’t think it would be a good idea to introduce a regime of tightly controlled mortgage rates,” he said.
On arrears, he said he was worried about the number of cases being brought to court.
And he warned that he didn’t believe his colleagues on the Governing Council of the European Central Bank would be persuaded to attend the banking inquiry.
“I gather that they’re not minded to attend. That was the latest that I heard,” he said. Pressed by Fianna Fail Senator Thomas Byrne to encourage his ECB colleagues, he said that it would have little effect.
“I think I can tell my understanding of the ECB’s position at all points in time, and I will do so.”
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