Mortgage Measures

Mortgage Measures

The mortgage measures are aimed at strengthening the resilience of both borrowers and the banking sector.

The measures set limits on size of mortgages that consumers can borrow through the use of loan-to-value (LTV) and loan-to-income (LTI) limits.

The Central Bank is committed to annually reviewing the calibration of the mortgage measures in the context of wider housing and mortgage market developments, to ensure that they continue to meet their objectives of:

  • Increasing the resilience of banks and borrowers to negative economic and financial shocks
  • Dampening the pro-cyclicality of credit and house prices so a damaging credit-house price spiral does not emerge.

As a result of the 2020 review of the mortgage measures, the Central Bank has judged that the measures - as currently designed and calibrated - continue to meet their objectives and will remain unchanged in 2021. This judgement is informed by the latest Risk and Policy assessment in the Financial Stability Review 2020 II.

Key Findings of this year's review informing the Central Bank's decision include the following:

  • The initial effects of COVID-19-related disruption on the housing market have eased, but implications of the shock continue to feed into housing demand, supply, market activity and prices. Housing supply, in particular, is likely to remain significantly below pre-pandemic levels until 2022.
  • House price growth has been relatively flat throughout 2020, with little sign of an adverse effect of the pandemic.
  • Mortgage lending has shown signs of recovery, but remains below the levels of recent years with an uncertain outlook reflecting the potential shape and horizon of the recovery.There is no evidence of a generalised deterioration in new lending standards, with the 2020 H1 distributions of LTV and LTI ratios broadly consistent with 2019.
  • Credit developments have not been excessively driving house prices. Mortgage credit contracted at the onset of the shock, but this was mainly driven by a very sharp fall in demand for credit.There is little evidence to suggest that observed price trends in the housing market were driven by a contraction in the supply of credit. In addition, the mortgage measures are not a material driver of the observed changes in credit supply conditions over the course of 2020 across the banking system.
  • Taking a longer-term perspective, the mortgage measures have been effective in strengthening bank and borrower resilience. The benefits of that resilience are most evident in times of stress; payment break take-up rates show that financial distress is lower among loans issued under the measures relative to those originated under looser conditions during the 2000s.
  • The Central Bank considered whether a temporary loosening of the mortgage measures might be appropriate to guard against any potential tightening in credit supply by lenders. However, it judged that – as the measures only provide a floor to underwriting standards – any changes to the rules would be unlikely to be effective in guarding against credit tightening decisions by lenders which predominantly reflect changes in their own risk appetite.
  • More broadly, given the underlying demand-supply imbalance in the current housing market, additional debt would likely lead to greater pressure on house prices, with associated adverse implications for bank and borrower resilience.

Overall, the Central Bank has judged that the measures - as currently designed and calibrated - continue to meet their objectives.

Overview of Mortgage Measures for 2021

Previous Reviews and Analysis

First introduced in February 2015, the mortgage measures are aimed at enhancing the resilience of both borrowers and the banking sector. The following provides previous reviews of the mortgage measures, associated research and Statutory Instruments.

See also: