100% mortgages would drive up house prices, Central Bank warns
Celtic Tiger-era 100% mortgages would drive up house prices and increase risks to borrowers and banks, the Central Bank has warned.
Mark Cassidy, the Central Bank's director of financial stability, warned TDs and senators at the Oireachtas housing committee against the return of 100% mortgages.
'We think that would be a bad idea,' Mr Cassidy said.
It would add to demand without any impact on supply and therefore add to prices.
'More fundamentally, it increases the risk for borrowers and for banks.'
Banks introduced 100% mortgages during the Celtic Tiger period, but more recent Central Bank rules do not allow either 100% or 95% mortgages to be given out.
Current rules require borrowers to have a 10% deposit in order to obtain a mortgage.
Mr Cassidy said reintroducing 100% mortgages would increase the risk of default, if a household's income fell. He added that, if house prices fall, homeowners would immediately fall into negative equity and would be likely to 'get into financial distress'.
'We believe a minimum of a 10% deposit remains necessary for either first time borrowers or existing borrowers,' he added.
'We would be confident that 100% mortgages are overly risky, both from the perspective of the borrower and the perspective of the bank.'
The matter was raised by a number of TDs and senators during the meeting, who questioned whether it would be possible to allow for the reintroduction of 100% mortgage products. It comes as Independent Ireland has called for the reintroduction of 100% mortgages, saying that many tenants are able to pay more in rent than they would need for monthly mortgage repayments.
The Central Bank was also critical of Government plans to consider expanding the First Home shared equity scheme to second-hand homes. Robert Kelly, the Central Bank's director of economics and statistics, warned against the measure.
'The challenge in front of us, it's mainly supply. The current scheme works through pushing up demand and house prices, creating more additional funding for them to buy houses so it stimulates supply.
'I don't see how applying that to the second-hand housing market would achieve that. I think the net effect of that would be additional demand, which would likely feed its way into house prices as opposed to creating large amounts of supply.'
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