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New mortgage rules 'will stop another boom... but rents could explode'

But the Central Bank could relax its rules for first-time buyers.

Image: Freidwall via Flickr/Creative Commons

Updated at 9.16am

THE CENTRAL BANK’S proposed new mortgage rules will result in rents pushing above boom levels in urban areas, according to estate agents.

Rents in some areas are roughly 10% off their 2007 peaks already.

The proposed mortgage guidelines would require most potential home buyers to come up with a 20% minimum deposit, and most loans will be for a maximum of three-and-a-half times the borrower’s income.

However, there is a fear that the effect of new mortgage rules will be felt most strongly in urban areas, meaning as more people turn to rental property, rents will creep up.

The Real Estate Alliance is calling for the Central Bank to consider introducing different requirements for each part of the ‘three-tier market’ that exists in Ireland.

This consists of  Dublin, followed by the commuter counties and large urban areas nationwide such as Galway and Cork, and finally, the rest of the country.

“We call for the Central Bank to acknowledge the three tier market by introducing realistic brackets for different house prices, which would assist in removing the geographical inequities which are apparent in the sector,” chief executive Philip Farrell.

The price of an average house can range from €60,000 in some counties to €425,000 in particular parts of Dublin and as result of this, people buying in the capital may require a net deposit of €70-80,000.

‘Some resistance’ to plans

Central Bank governor Patrick Honohan is expected to announce the full details of the proposed mortgage caps next week, although he told an IMF conference on Monday that there was ‘some resistance’ to the new plans.

Governor Patrick Honohan make keynote Central Bank governor Patrick Honohan at Monday's conference Source: Sasko Lazarov/Photocall Ireland

The Irish Times today reported the Central Bank was now looking at different rules for first-home buyers involving lower deposit limits for those trying to take a step onto the property ladder.

It was unclear whether the rules would only apply to properties under a certain price, the newspaper said, while another likely change was a phasing-in of the changes in response to criticism from the Department of Finance.

However TheJournal.ie understands no final decisions have been made yet on whether the original, proposed mortgage cap would be modified at all.

The Central Bank wouldn’t comment on the report when contacted today.

Plan still has merit

Meanwhile, Farrell stressed that the Real Estate Alliance is welcoming plans to ensure the market is kept under control – but notes that it is untested in an economy like that of Ireland.

There is absolute merit in what the Central Bank are introducing and it is to be welcomed in assisting in the prevention of a property bubble in the future,” he said.

“This has proven successful in particular parts of the world, especially Asia. However, it remains somewhat untested in this part of the world.”

Additional reporting Peter Bodkin

Read: Was Eddie Hobbs pimping property during the boom? >

More: The IMF is a fan of the Central Bank’s mortgage rules >

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Nicky Ryan

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