Fianna Fáil’s Finance Spokesperson Michael McGrath has said it is a "worrying development" that the Central Bank says a lender should assess a borrower’s ability to repay the capital at the end of an interest-period on a buy-to-let mortgage, and the system is "simply not workable".
The Central Bank said lenders offering interest-only buy-to-let mortgages are responsible for assessing the borrower’s ability to repay the entire capital of the loan.
It follows concern that has been raised new buy-to-let mortgages being advertised by ICS Mortgages (Dilosk DAC).
The mortgages involve the option of the borrower, including private landlords, to pay interest only for up to 15 years and then paying the loan capital at that point.
Mr McGrath said the "whole model is built on the assumption of rising property values, rising rents and stable interest rates. We should know by now that not everything goes according to plan in real life.
"The Central Bank also seems to completely miss the point that investment properties are people’s homes and we need to ensure that the debt underpinning these properties is on a sustainable basis from the origination of the loan to the final payment.
"I do not believe that long term interest only mortgages provide a solid or sustainable funding basis for the rental sector," he added.
In response to Mr McGrath’s concerns, Central Bank Governor Philip Lane said that in the lead-up to the financial crisis many buy-to-let borrowers were allowed to borrow up to 80% or 90% of a property’s value, but this is no longer the case.
Mr Lane said the regulator’s macro-prudential rules now limit loan-to-value ratios for buy-to-let mortgages at 70%, and that this "mitigates the potential risk of a fall in house prices".
He said lenders must carry out an "assessment of affordability to ascertain the personal consumer’s likely ability to repay the debt, over the duration of the agreement".
The Central Bank head also said the introduction of the regulator’s Consumer Protection Code in 2012 as well as the European Banking Authority Guidelines mean lenders must ensure they act in the best interests of their customers.
Speaking last month, CEO of Dilosk (the parent company of ICS) Fergal McGrath said he was not concerned about their interest-only product.
He said similar products are available and popular across Europe.
The Dilosk CEO added there are stringent stress tests applied, including rental income, vacancy periods and interest rates, which offer protection to both the lender and the borrower.
At the end of 2017 there was €21.9 billion of buy-to-let debt outstanding in Ireland.
This compares with €98.5 billion of owner-occupier mortgage debt.
The Central Bank Governor acknowledged that "it is true that loan performance in the BTL segment has been particularly poor".
At the end of last year, 22.7% of buy-to-let loans - when weighted by balance - were in arrears of more than 90 days, with the corresponding figure for owner occupiers at 9.8%.
