In an analysis of Government plans to help mortgage holders in last year's budget, the Central Bank said the scheme was not focused on those who were suffering most from the"shock" of rising interest rates.
It said those eligible for the scheme also had smaller loan balances and that it appeared to largely exclude younger borrowers who were far more likely to have bigger loans to repay. It said giving mortgage holders tax relief they did not genuinely need was a"deadweight" and risked increasing house prices without any increase in home ownership rates.
"The Central Bank would have deep reservations were the scope of the scheme to widen to include new lending, as it would provide another pro-cyclical demand-side stimulus in a housing market that is characterised by extremely weak supply," the noted added. The Central Bank also warned there was the potential for a mortgage interest relief scheme to encourage lenders to increase their rates.
They said while the number of people to benefit would be relatively low, it was possible this would grow if interest rates continued to rise.