LTV Limits On Mortgages May Prevent A Repeat Of Ireland's Housing Bubble

The introduction of loan-to-value (LTV) limits on mortgages might help to prevent a repeat of Ireland's housing bubble, according to new research by the Economic and Social Research Institute (ESRI).

An examination of the international evidence suggests that requiring house buyers to accumulate higher deposits dampens house price growth and also protects the financial system from sharp declines in house prices. The evidence suggests that countries with higher LTV ratios have experienced higher house prices and higher house price volatility.

Although LTV ratios in Ireland have reduced in recent years, this represents a market response to the crisis. The introduction of LTV limits by regulators now would effectively prevent the re-introduction of 100% mortgages when the market picks up.

Referring to the findings, ESRI report author, Dr. David Duffy, said: "We wouldn’t expect such measures to have an impact on the housing market at the moment, because it is very weak. However, this may be the time to put in place the policy framework to help to prevent the reoccurrence of a housing market boom in the future. The experience of Hong Kong shows that LTV limits can be actively adjusted to take account of the property market cycle."


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