Wider view needed for new mortgage lending rules

9 December 2014


In regulating how much a person can borrow to buy a house, the State must also take into account not just the Central Bank’s proposals but the wider crises in housing and personal debt. So says legal rights group FLAC in a submission on the Bank’s proposed macro-prudential regulation document.

The organisation suggests that the Bank must take more time to consider the tools available to it before rushing into decisions that will impact on people in Ireland long-term, in areas like household debt and housing policy. 

“The future of housing in Ireland post-crash is a critically important discussion. FLAC believes that the state needs sufficient time and information before making crucial decisions that will impact on people’s lives into the future. Mortgage lending is only one aspect of the housing problem and we do not believe that it should be considered in isolation from others such as access to social housing and to the private rental dwellings,” said FLAC Senior Policy Analyst Paul Joyce. 

“We need a coordinated ‘whole of Government’ approach to ensure to all a secure, affordable and accessible home; the potential effect of proposals and measures in one sector should be assessed upon the others,” he commented.

FLAC suggests that any Central Bank proposals to cap mortgage servicing costs as a percentage of take-home pay should also be applied to the private rental sector. With inadequate social housing options, many on low incomes have had to enter a private rental market that is financially beyond their reach due to rising rents. There has been a well-documented failure of the Rent Supplement payment to bridge the gap between ‘capped’ and actual rents, leading to evictions and in some cases homelessness. Many people who do not qualify for any form of housing support are now paying a disproportionate amount of net monthly income towards rent.

In terms of the mechanics proposed in the Consultation Paper, FLAC also suggests a more flexible approach to loan-to-value ratio that responds to market developments, as well as lower limits for those who can prove that they have a track record of saving deposits over time from earnings. The organisation also suggests that the Bank supplies lenders with clear guidelines on how to administer the 15% flexibility they have around mortgage lending and questions the merits of mortgage insurance as an added cost with little benefit for borrowers. 

Finally, FLAC questions the use of a Loan-To-Income ratio as a yardstick for assessing affordability, arguing that further research is needed on income requirements.  The organisation believes that a Debt-to-Income ratio that takes into account a borrower’s total debt may be a more effective way of establishing capacity to pay than LTI.


Editors’ notes:

  1. FLAC (Free Legal Advice Centres) is a human rights organisation which exists to promote equal access to justice for all. FLAC is an NGO that relies on a combination of statutory funding, contributions from the legal professions and donations from individuals and grant-making foundations to support its work.
  2. FLAC offers basic legal information through its telephone information line (1890 350 250) and free legal advice through its network of 80 volunteer evening advice centres – more at  It also campaigns on a range of issues including consumer credit, personal debt, fairness in social welfare law, public interest law and civil legal aid.
  3. Consultation Paper for the Central Bank’s macro prudential measures for mortgage lending
  4. FLAC’s submission on the Bank’s consultation paper.
  5. FLAC has recently issued a submission to the Bank on the forthcoming Mortgage Credit Directive.
  6. Also recently, FLAC has presented to the Joint Oireachtas Committee on Finance in two other related areas – the sale of loan books to unregulated third parties and the possibility of a mortgage insurance scheme for Ireland.
  7. In March 2014 FLAC launched a major new report on legal protections for consumers of credit and other financial services in Ireland, Redressing the Imbalance.