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Guaranteed Loser

Government's mortgage plan won't solve housing crisis - Davy

95 per cent mortgages are the solution to a problem, but it’s not a problem we have.

THE GOVERNMENT’S PLAN to incentivise banks to offer up to 95 per cent mortgages will not solve the growing housing crisis in the country, a leading economist has said.

Conall MacCoille, chief economist with Davy Stockbrokers, told that “allowing people to borrow more isn’t going to solve the housing crisis”.

The plan, which was leaked last week in advance of being included in the Government’s Construction 2020 housing plan, has attracted fire from political and economic quarters, with critics saying that it will increase demand for a limited supply of housing.

The plan has also reportedly come under fire from Department of Finance as well as minority coalition partner Labour.

MacCoille said: “The 95 per cent loan to value (LTV) subsidy is intended to stimulate the supply of credit, which is unnecessary, and will do little to help housing supply”

Structural problems

He said that the policy is poorly thought out, given the nature of the structural problems facing the Irish housing market.

“The stock of Irish mortgage lending is contracting – as it naturally should do in the aftermath of a credit bubble. However, given banks are adequately capitalized they are now under pressure to engage in new mortgage lending.”

In other words, the banks are already inclined to get capital out in the market, and don’t need to be pushed more by the Government to do so.

MacCoille points to a growing gap between mortgage approvals and actual lending as evidence of the fact that those with approved mortgages are struggling to find properties to purchase.

Another possible intention behind the policy would be to strengthen mortgage-backed buyers when compared to cash buyers, but again MacCoille argues that the policy will struggle to achieve this aim.

“While perhaps desirable, again this policy would probably be fruitless, merely leading to more house price inflation and little supply response. It also poses financial stability issues, (further) indebting first time buyers…when interest rates are exceptionally low.”

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