The Economic and Social Research Institute has said current conditions in the property market do not justify the introduction of a fixed higher deposit and lower loan to income ratio, as proposed by the Central Bank.
The Institute said the bank should instead have a variable system to control mortgage lending that takes market conditions and property supply into account.
The ESRI agrees with the idea of a loan to value cap and a loan to income ratio to control mortgage lending by banks.
But it has said current conditions do not justify introducing the limits proposed by the Central Bank.
It argues instead for a rules based policy that would see the Central Bank constantly monitoring a range of property indicators, such as house process, housing supply and credit supply, and issuing lending restrictions as required.
Such a policy tool would act against the housing cycle, tightening lending when the market rises, but relaxing it when the market weakens.
The ESRI claims this would promote a stable housing market, and improve financial safety for lenders and borrowers.
Dr Kieran McQuinn of the ESRI speaking on RTÉ’s Morning Ireland said the Central Bank guidelines were too rigid.
“We’ve suggested, for example, house prices be looked at – the relationship between house prices and where fundamentals are in the market – but also that you look, at for instance issues, such as mortgage credit and you look at, for instance, the rate of construction or housing supply.
“Housing supply, I suppose has been identified by many commentators as the major issue in terms of the issues afflicting the sector at the moment and the need essentially to increase housing supply.
“There is one possible outcome of applying the measures as they currently stand as it could have implications for housing supply going forward”, he said.
Meanwhile, in its latest economic forecast the ESRI expects the economy to grow by more than 4.5% next year, and unemployment to drop below 10% for the first time since 2008.
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