The mortgage measures are aimed at strengthening the resilience of both borrowers and the banking sector.
The measures set limits on size of mortgages that consumers can borrow through the use of loan-to-value (LTV) and loan-to-income (LTI) limits.
The Central Bank is committed to annually reviewing the calibration of the mortgage measures in the context of wider housing and mortgage market developments, to ensure that they continue to meet their objectives of:
- Increasing the resilience of banks and borrowers to negative economic and financial shocks
- Dampening the pro-cyclicality of credit and house prices so a damaging credit-house price spiral does not emerge.
As a result of the 2019 review of the mortgage measures, the Central Bank has judged that the measures – as currently designed and calibrated – continue to meet their objectives and will remain unchanged in 2020. This judgement is informed by the latest Risk and Policy assessment in the Financial Stability Review 2019 II.
Key Findings of this year’s review informing the Central Bank’s decision include the following:
- Growth in new mortgage lending, housing market activity and in house prices has continues, but at a slower pace. The share of purchases by households financed by a mortgage continues to rise.
- The measures have been effective in maintaining prudent underwriting standards in the mortgage market in recent years, despite the upward pressure on house prices relative to incomes due to supply constraints.
- The measures have become more binding as prices have grown faster than incomes: more households are borrowing at, or close to, the maximum available implied by the limits. This is consistent with the measures being more binding at some points in the cycle and being effective in maintaining prudent lending standards, even in a market which has been supply-constrained.
- Over the course of the year, the supply of new housing has also continued to grow. The supply response to date has been strongest in areas where house prices are higher and it is these areas where the measures are also more binding.
- Central Bank analysis suggests that, in the absence of the mortgage measures, both the proportion of highly-indebted mortgage borrowers and the level of house prices would likely have been significantly higher in 2019 than their current observed levels.
- This implies that the mortgage measures have been effective in strengthening borrower and lender resilience. It also implies that the mortgage measures have been effective in limiting the potential for an adverse credit-house price spiral to emerge.
- While the objective of the mortgage measures is not to target house prices, this analysis also suggests that – in the absence of the mortgage measures – affordability pressures for mortgage borrowers would have been even more acute.
Overall, the Central Bank has judged that the measures – as currently designed and calibrated – continue to meet their objectives.
Previous Reviews and Analysis
First introduced in February 2015, the mortgage measures are aimed at enhancing the resilience of both borrowers and the banking sector. The following provides previous reviews of the mortgage measures, associated research and Statutory Instruments.
The regulations were also informed by a public consultation issued in 2014. The Central Bank of Ireland published a feedback document providing an overview of responses to the submissions made during the consultation process and the review process undertaken by the Central Bank of Ireland.
For further information see: CP87 Macro-prudential policy for residential lending.