The Central Bank has announced big changes to its mortgage lending rules, the first alterations to the measures since they were introduced seven years ago.
Major implications are likely for first-time buyers and movers.
Q: What exactly are the changes?
A: The changes will see first-time buyers able to borrow up to four times their income for a mortgage, from January. This is up from three and a half times before now.
Second-time buyers will no longer need to have a 20pc deposit when moving to a new home.
From next year, they will be able to secure a mortgage if they have a 10pc deposit.
Second-time and subsequent buyers will continue to be restricted to borrowing three and a half times their income for a mortgage.
There will be slightly more exemptions to the rules available for first-time buyers.
Q: Any more?
A: Yes, a wider definition of a first-time buyer is also being introduced.
Borrowers who are divorced or separated or have undergone bankruptcy or insolvency may be considered first-time buyers, where they no longer have an interest in the previous property.
And a first-time buyer who is getting a top-up loan or re-mortgage with an increase in the principal may be considered “first time”, provided the property remains their primary home.
Q: Any examples of what this means for prospective first-time buyers?
A: Take a nurse and garda, buying their first home. They have a joint income of €80,000.
As the mortgage measures stand at the moment, the maximum their lender can allow them to borrow is €280,000. This is unless they are able to secure an exemption to the loan-to-value and the loan-to-income limits. Under changes coming in January, these first-time buyers will be able to borrow €320,000 from next year. This means they can borrow an extra €40,000.
If state schemes for first-time buyers are taken into account, they could borrow even more. These include the Help-to-Buy scheme and the First Home Scheme, which is a shared equity scheme with the State taking a stake in the home.
Broker Michael Dowling says using these schemes would allow a couple on €62,500 to buy a home for €400,000 in the likes of Kildare.
This is on the basis that the First Home Scheme is changed to allow borrowing of four times income.
Q: What about exemptions?
A: The percentage of exemptions to the income and loan-to-value limits, known as the macroprudential policy, will be restricted to 15pc of mortgages. Currently up to 20pc of mortgages can get an exemption from the lending limits.
The Central Bank is allowing banks to “carry over” loan-to-income and loan-to-value exemptions not used in a calendar year to be used within six months of the following year.
Q: Why are the changes being made now?
A: The Central Bank has long argued that the mortgage limits were appropriate and were acting to mitigate over-borrowing and reckless lending. It launched a review of the measures in May last year.
At the time, interest rates were at historic lows and expected to stay that way.
It seems that the Central Bank has responded to some of the pleas it received in its public consultation exercise.
Its governor Gabriel Makhlouf stressed the important role of the rules for the long-term health of the mortgage market.
However, he added: “At the same time, it is clear that affordability and access to housing are key challenges facing many people in Ireland.”
Q: Who will benefit – buyers, builders or banks?
A: Banks will be more profitable as they will be able to lend more. Builders argue that the changes will make building homes more viable, but many suspect they will just keep pushing up prices, arguing that material costs are up, and end up profiting.
New buyers and movers should have more leeway to borrow, but will end up owing more over the term of the mortgage.
Q: Will the impact be that property prices keep rising?
A: Mr Makhlouf admitted that the changes in the rules would lead to a “modest” rise in house prices, which are already back at levels last seen during the Celtic Tiger madness. But he stressed that rising mortgage interest rates were likely to dampen prices.
