The 20 per cent mortgage deposit rule may be eased for first time buyers.
Last month, the Central Bank announced new mortgage rules requiring homebuyers to put down a 20% deposit on the value of a property.
But today, Central Bank Governor Patrick Honohan has suggested the rules requiring mortgage applicants to save a 20% deposit, should be eased in the case of first time buyers, where the mortgage is insured.
He was speaking at the annual National Management Forum, held by the Money Advice and Budgetary Service, in Portlaoise.
"Mortgage insurance is a method that has been used in the US (and others) for almost a century to enable borrowers to obtain finance for housing without actually having to save the 20 per cent that would otherwise have been insisted upon by the lenders and their regulators," he said.
"The Central Bank’s recent consultation paper pointedly raises the question of whether adequately insured mortgages should be allowed to exceed the general 80 per cent rule which has been proposed – this might cover up to 90 per cent, for example.
While we point out that too liberal a use of such insurance can have the effect of neutralising the effectiveness of a ceiling on loan-to-value ratios as a mechanism for preventing house price bubbles (and while it typically provides no protection to the borrower), this would be less a concern if limited, for example, to relatively small loans and/or first time buyers."
Mr Honohan continued: "Of course, mortgage insurance would achieve relatively little if it merely shuffled systemic risk around within the domestic economy: external insurance from solid insurers would be needed. I look forward to the responses on this matter, including on the practical issues of implementation that might be entailed."
