Borrowers with Bigger Debts Twice as Likely to Seek Payment Breaks in Ireland

Borrowers with higher debt burdens than the current Central Bank of Ireland’s rules allow are more likely to have sought payment breaks during the current crisis, the Irish Central Bank’s deputy governor Sharon Donnery has said, according to a Irish Times report. This was proof that the regulator’s mortgage lending rules had helped the financial sector “absorb rather than amplify the shock of the pandemic”, she said. The Central Bank’s rules curtail consumers to borrowing within strict loan-to-value (LTV) and loan-to-income (LTI) limits. Banks are, however, allowed to apply exemptions in some cases, and many borrowers will have secured loans prior to these rules being enforced. Ms. Donnery said there was clear evidence that higher debt burdens have been associated with greater take-up of payment breaks. “For example, those borrowers with an LTI of 4 were twice as likely to opt for a payment break as those with an LTI between 2 and 2.5, reflecting the link between borrowing levels and repayment difficulties,” she said. Counterfactual analysis also shows that “house price levels could have been approximately 25 per cent higher in the year prior to the pandemic had the mortgage measures not been in place”, she said.

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