Lending above macroprudential mortgage limits: The Irish experience since 2015

Borrower-based measures introduced in 2015 by the Central Bank of Ireland placed a limit on the loan to income (LTI) and loan to value (LTV) ratio of newly originated mortgages in Ireland. These limits come with an important exception: a system of “allowances” for a percentage of each lender’s total annual loan volume to be issued above the stated LTI and LTV limits. In this Note we study the way in which these allowances are allocated, focusing on two dimensions. First, from a borrower composition viewpoint, we show that allowances for First Time Buyers (FTBs) typically go to borrowers who are at low to middle incomes, predominantly in Dublin and more likely to be single. Second, from a risk management perspective, we study banks’ choice of LTI and LTV levels within the allowance group.We show that borrowers with an LTI allowance are highly likely to have the maximum allowable LTV level, and vice versa, suggesting that a large proportion of borrowers are accessing the maximum available leverage under the regime. Finally, we show that, in line with rapid house price growth since 2015, the LTI and LTV levels of loans with allowances have grown in each year to 2018.