Mortgage rules have stopped house prices from rising even more quickly, says Central Bank

Vasileios Madouros, the Central Bank’s deputy governor, said there is now evidence that such measures reduce the growth of house prices relative to what might otherwise have been the case. He claimed Ireland had seen “a meaningful reduction in the tail of house-price expectations” after the introduction of the borrowing restrictions in 2015.

In the aftermath of the property price crash, which led to tens of thousands of mortgages falling into arrears and default, the Central Bank introduced macroprudential measures to prevent excessive borrowing in the future.

A loan-to-income (LTI) limit has been set at four times income for first-time buyers (FTBs) and 3.5 times for second or subsequent buyers.

Meanwhile, a loan-to-value (LTV) limit means buyers must have a minimum deposit of 10pc before they can get a mortgage, with buy-to-let investors needing 30pc.

Banks and financial institutions have some leeway on this, as they can lend to 15pc of buyers above these limits.

Mr Madouros said that, in 2015, Ireland was among the first European countries to intervene in the mortgage market in this way, but it is now well established practice worldwide.

Speaking at an economic summit in Wexford today, he said that contrary to some commentary, the interventions are not designed to protect the banks.

“They are there to guard against the damaging effects of unsustainable mortgage lending on society as a whole.”

He said the environment of rising house prices relative to incomes could have created the conditions for a ramp-up in the number of highly indebted households, as had happened in the 2000s. The measures introduced by the Central Bank had stopped this happening.

“Unlike the last cycle, the increase in house prices has not led to a sharp increase in highly-indebted mortgagors,” Mr Madouros said. “Mortgage credit has been flowing to the economy in aggregate, but the measures have constrained the emergence of a tail of highly-indebted households.”

The deputy governor pointed out that Ireland once had much higher levels of mortgage defaults than the rest of the EU, with the rate running at double the EU average for a while, but that gap had closed.

“Such distress as there has been has predominantly manifested in mortgages issued before the financial crisis, at much weaker lending standards,” he said.

He said the Central Bank is still working to reduce the amount of households in mortgage arrears, and that its new Consumer Protection Code, which comes into effect early in 2026, would have important amendments in this area.

Easing the mortgage rules in 2022, to help first-time buyers, was a difficult decision for the Central Bank, he revealed. The regulator decided to increase the LTI limit for FTBs from 3.5 to four-times income, allowing them to borrow more.

The deputy governor said that research has shown that the revised rules led to an increased probability of first-time buyers buying a newly built property, and greater access to mortgages for younger households.

“The analysis also points to certain borrowers in Dublin purchasing more expensive homes following the recalibration,” he added. “While those borrowers account for around 2.5pc of total market activity, this highlights some of the very real trade-offs that we face in considering the calibration of the measures.”