A financial stability perspective on the First Home shared equity scheme

Orla De Burca, Robert Kelly and Eoin O'Brien
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Orla De Burca: Central Bank of Ireland
Eoin O'Brien: Central Bank of Ireland

No 12/FS/21, Financial Stability Notes from Central Bank of Ireland

Abstract: This Note outlines the interaction between the First Home scheme and the Central Bank’s macroprudential mortgage measures. Taking a financial stability perspective, it analyses the considerations, covering the implications for borrower resilience, bank resilience as well as credit and house price dynamics, that underpin the change in the mortgage measures regulations to clarify the ability of regulated mortgage providers to take part in the scheme. The implications for borrower and bank resilience are considered to be limited or (better) mitigated by other elements of the prudential framework. Nonetheless, as a measure which will boost the finance available to households to purchase a home the potential for creating upward pressure on house prices is present. The extent of this impact will depend on broader housing market conditions and given the anticipated size of the scheme the Central Bank judged that it would not be proportionate for the mortgage measures framework to altogether restrict lenders from participating in its introduction. Central to this judgement is the characteristics of this form of financing, other safeguards provided by prudential bank capital regulations and the Scheme’s initial scale and scope.

Date: 2021-11
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