Mortgage market is ‘dysfunctional’,say experts

The mortgage market is the most dysfunctional it has been in the last 25 years, a leading financial expert claims.

Irish Brokers Association mortgage committee chairman Michael Dowling said lenders had their hands tied by new Central Bank rules.

His comments came as ratings agency Moody’s said population growth and economic recovery would continue to drive housing demand and property prices for some time.

Mr Dowling said good candidates for a first mortgage, or those who wanted to move, were unable to get loan approval.

“In my 25 years in the mortgage market, I have never experienced such a dysfunctional mortgage market,” he said.

“We have five banks lending but their hands are tied by the new Central Bank rules on lending.”

Ireland has the fastest-growing economy in Europe, unemployment is falling, exports are growing and our national debt is under better control, but we are not providing enough homes for those who would like to buy and at the extreme end, homelessness is growing, said Mr Dowling.

He said no other market had introduced two significant changes the way this country did in February – a reduction in loan to value (LTV) along with loan-to-income limits on how much can be borrowed.

In the UK, which is facing similar problems to ours, they introduced a LTV reduction but left loan-to-income limits at 4.5 times. It is now 3.5 times in this country.

The new rules are on top of ‘stress tests’, which examine if borrowers could still pay the mortgage if interest rates were two percentage points higher than current interest rates.

This meant that borrowers and movers were being hit with three separate rules, he said.Ratings agency Moody’s said demand for housing would remain elevated, due to stronger-than-expected economic recovery and improved employment/income prospects.

Moody’s said the strength of economic recovery was likely to draw recent expatriates back, resulting in a continuing increase in population.

This higher population growth will support housing demand, which is facing tight housing supply in urban locations, it added.