Mortgage Lending in Ireland is currently constrained due to a number of key factors.Restrictive lending criteria for all categories of borrowers are currently in place, and have become progressively restrictive in the past 2 years (with further material restrictions applied in the last 3-4 months). Lending criteria is particularly restrictive for non-first time buyers (FTBs) where the average loan to value maximum is 80%. First Time Buyers can avail of up to 90% loan to value where they meet other stringent assessments of affordability, credit history, employment security and bank account conduct. Lending criteria has been progressively tightened as lenders have had to ring-fence greater ratios of Tier 1 to satisfy the Financial Regulators requirements for liquidity. Additionally, wholesale borrowing costs for Irish banks continue to rise and present challenges to the profitability of taking on new mortgages to the balance sheet. Thirdly, the Financial Regulator (following sustained criticism of the lack of activity in controlling the growth of mortgage lending credit 1999-2008) has taken a more intrusive and instructive approach to the detail of the Irish lenders credit policies and risk appetites – including making specific, and conservative, directives regarding the appropriate levels of loan to values, repayment capacity ratios and use of other features used in lending assessments (i.e. ending the practice of including room rental allowances towards repayment capacity). Finally, there is some evidence that potential borrowers are reluctant to move to make a purchase whilst there is continued discussion and opinion in the media that house price values still have some way to fall before reaching the bottom, effectively damaging consumer confidence in the transaction.
On the positive side it should be noted that there are signs of improvement and opportunity in the market. The CEO of PTSB has indicated that they will return to more normalised levels of lending towards the end of 2010. House affordability levels are back to those last seen in 1995 (EBS/DMK Survey). The majority of lending being approved currently is to FTBs (with the two main retail banks having committed to lending circa €500m between them in 2010). Estate Agents indicate increased sales activity, whilst noting that the main obstacle to completions is the availability of mortgage finance. Provisioning and impairment levels in some of the banks is now beginning to receed in respective of prime mortgage borrowers.