Fine Gael's Finance spokesman has said that the government would be well advised to take serious note of the statement by the Governor of the Central Bank. Michael Noonan said that, while inflation is not a serious threat to the economy, astronomical house prices in Dublin are. In a statement, he said that false markets do not last.
The Governor of the Central Bank has warned the country's mortgage lenders that they are advancing too much money to borrowers. In a letter to executives of commercial banks and building societies, Maurice O'Connell said that routine inspections had revealed disturbing practices by the commercial institutions in assessing the size of loans.
Mr. O'Connell said that there was evidence that the excessive rise in house prices had been partly driven by the ready availability of mortgage finance on generous terms. The fact that this letter was addressed to the chairman of every mortgage lender in the country underlines the seriousness with which the central bank is addressing this issue. Maurice O'Connell says in the letter that the bank has been concerned for some time now that institutions are breaching the guidelines governing amounts that people can borrow.
He says that a recent analysis of practices has shown that some lenders have no evidence as to how borrowers came by the balance of their money. He also says that, increasingly, lenders are including additional income, from sources such as room rental, parental guarantees or potential future earnings, when assessing a mortgage. Mr. O’Connell also criticises, what he calls, the particularly disturbing practice of allowing large amounts of the borrowers after tax income to go towards paying off a mortgage.
The governor says that there is evidence that the excessive rise in house prices has been partly driven by the ready availability of mortgage finance on generous terms. He warns credit institutions that they have a duty to be aware of the financial and social consequences of an excessively flexible lending policy. Mr. O’Connell has asked for a detailed reply from the boards of the credit institutions.