Central Bank Deputy Governor Sharon Donnery has said the benefits of the mortgage measures were evident over the past year as the resilience built since their introduction helped to protect borrowers and lenders during the Covid-19 crisis.
Ms Donnery made her comments today as she participated virtually in the Bank of Lithuania’s macroprudential policy conference.
Highlighting the important role the measures have played over the past seven years, Ms Donnery said they have two objectives.
The first is to increase the resilience of banks and borrowers to negative economic and financial shocks, and the second is to dampen the pro-cyclicality of credit and house prices so a damaging credit-house price spiral does not re-emerge.
She said the policies have contributed to meeting their objectives as the resilience built up since the introduction of the mortgage measures showed its worth during the Covid pandemic.
House prices entering the pandemic were at lower risk of a cyclical downturn than may have been the case in the absence of the mortgage measures, she said.
Meanwhile, counterfactual exercises suggested house prices may have been up to 25% more expensive had the measures not been introduced.
In addition, borrowers with lower indebtedness levels were less likely to require the support of a payment break, she added.
Ms Donnery said the mortgage measures framework is currently under review and the outcome of the review is expected to be announced in 2022.
The Central Bank also published three Financial Stability Notes today, which illustrate the type of analysis which will inform the overall mortgage measures framework review.
The cost of housing and indebtedness across European and OECD households places Irish housing costs in an international context and reveals that loan to income ratios across the mortgaged population are similar in Ireland to elsewhere in Europe, and have fallen more than most since 2013.
Ms Donnery said this further indicates that borrower resilience has improved since the mortgage measures were put in place.
Meanwhile, Irish house price-to-income ratio has remained close to or below the median level across developed economies in recent years and Ms Donnery acknowledged that this also reflects the global nature of challenges to housing affordability over the last decade.
The Central Bank said its research also shows that new mortgage borrowers have become both older and higher-income since the mortgage measures were put in place.
However, she noted that this development also reflects wider societal and economic changes around demographics, income growth, and the risk appetite of banks since the last crisis.
The Central Bank research also highlights the importance of a policy mix that stimulates additional housing supply through reductions in construction costs, rather than increased price levels resulting from increased debt for borrowers.