Launched in 2015, the Mortgage Measures use loan-to-value (LTV) and loan-to-income (LTI) limits to cap the amounts that borrowers can borrow to purchase residential properties, while giving lenders some flexibility to lend above those limits. The Central Bank reviews the Mortgage Measures annually, but had already signalled that it did not plan to introduce substantive changes in 2021. Instead, the Mortgage Measures, together with market-based finance and capital buffers, are the three areas that are subject to the Central Bank’s ongoing review of its macroprudential policy framework. This review began in 2021, and will continue in 2022.
Key Consultation Points
Following its recent public engagement on the Mortgage Measures (summaries of the outcomes from those engagements are here and here), and in advance of what is expected to be a recalibration of the Mortgage Measures in late 2022, the Central Bank’s consultation is seeking views on the following points in particular:
- Whether two tests (the collateral-based LTV test, and an income-based test), should continue to be used.
- Whether the LTI test is the right income-based test to use. The Central Bank has examined whether a debt-to-income (DTI), or debt-service-to-income (DSTI), test would be more appropriate but is of the view that either would add significant complexity and that the LTI test should be retained.
- Whether allowances are important, and whether the current allowances are calibrated correctly. The Central Bank’s view is that allowances continue to be important so as to cater for specific borrower circumstances, but it is expected to recalibrate the current allowance bands.
- Whether the Mortgage Measures should continue to differentiate between borrower groups (recognising particular challenges faced by first-time buyers).
- Whether the Central Bank should review the Mortgage Measures every 3-5 years rather than annually.
The consultation closes on 16 March 2022, and recalibrated Mortgage Measures are expected towards the end of 2022.
Recent Operational Changes
Small, operational, changes were made to the Mortgage Measures on 7 December (S.I. No. 666/2021) as signposted by Central Bank Governor Gabriel Makhlouf on 25 November to deal with the following:
- The introduction of a ‘carry-over’ system for managing allowances, designed to allow lenders to carry over any unused allowance share for use in H1 2022. This carry-over is available in respect of loans that were approved in 2021, and applies to all allowance types across PDH and BTL lending.
- Clarifying the ability of retail banks to participate in the ‘First Home’ Affordable Purchase Shared Equity Scheme (one of the action points under the ‘Pathway to Supporting Homeownership and Increasing Affordability’ part of the Government’s Housing for All plan).