Central Bank regulations limiting increase in mortgage loan sizes are reducing the upward pressure on house prices
In the Quarterly Economic Commentary Research Note ‘House prices and mortgage credit: Empirical evidence for Ireland – An update’, the relationship between mortgage credit and house prices in the Irish residential market is examined. Models for house prices and mortgage credit are estimated. The results indicate that a strong mutually reinforcing relationship exists between mortgage credit and house prices, with movements in one variable likely to cause movements in the other.
Simulations of the models also indicate that post-2018, the actual average mortgage loan amount is somewhat below the value suggested by the model. This suggests that the macroprudential policy framework introduced by the Central Bank of Ireland in 2015 is restricting the average loan amount to be less than what it would be if the regulations were not in place. This in turn helps to reduce the upward pressure on house prices.
Commenting on the report, author Kieran McQuinn of the ESRI stated:
“The results of the analysis highlight the continued strong relationship between mortgage credit and house prices in the Irish market and the effectiveness of the macroprudential regulations in limiting the increase in average loan sizes.”