Makhlouf fires back at ESRI over mortgage rules criticism

It may not be quite briefcases at dawn, but Central Bank governor Gabriel Makhlouf needed little prompting when given the opportunity this week to fire back at the Economic and Social Research Institute (ESRI) for its recent comments that his organisation’s move in 2021 to ease mortgage rules for first-time buyers were “premature”.

You may recall one of the authors of the report, ESRI research professor and former Central Bank economist Kieran McQuinn, saying last month that the regulator’s relaxation of the rules had “perplexed many at the time”.

The ESRI said the Central Bank move to lift the upper limit on the loan-to-income ratio requirement for first-time buyers from 3.5 times to 4 had served to push multiples to levels “only previously seen at the peak of the Celtic Tiger boom”.

The latest figures from the Central Statistics Office show that residential property prices rose at an annual pace of 7.3 per cent in March, even after an aggressive series of European Central Bank (ECB) rate hikes. The market continues to be driven by demand outstripping supply.

Speaking at the unveiling of the Central Bank’s latest biannual Financial Stability Review on Tuesday, Makhlouf said the mortgage restrictions, first introduced in 2015, were never designed to control house prices, prevent reckless borrowing and lending.

He said: “I don’t believe that the changes we made … have actually added to house prices in a way that’s affected the stability of the system and the stability of the household resilience.”

Makhlouf said that his organisation “has access to a lot more granular information than they [the ESRI] do”.

He pointed to a chart in the report which suggested that the median loan-to-income (LTI) ratio of first-time buyers remained stable at about 3.5 times in 2022-2023, even if almost 40 per cent of new lending to this group had been in the 3.5-4 LTI range. The median during the boom years was above 4 times, it showed.

“The evidence is that the measures are working,” he said. “There is no evidence, to my mind, that the measures are actually fuelling some sort of credit boom.”