New Mortgage Lending Rules

Posted on 3rd December 2016 by Shauna Forde

The Central Bank announces big changes to its mortgage lending rules, in a move that will should make it easier for new buyers to get a mortgage.

Up until this welcomed announcement first time buyers needed a 20% deposit of the mortgage before they could be approved.

Between emigration, high unemployment after graduation and rent at an all-time high these leading rules meant for many of this generation getting on the property ladder would be no more than a pipe dream.

However as end of year starts to roll in there is some long await good news, The Central Bank announced first-time buyers will now be able to borrow any amount with a deposit of 10%.

So lets break down what that really means for buyers.

Up to now, new borrowers could have been approved for a mortgage with a deposit of 10pc for borrowings up to €220,000. They needed a 20pc deposit for all amounts over that.

This means that a first-time buyer purchasing a home for €300,000 will qualify for mortgage approval with a deposit of €30,000. Up to now the buyer needed a deposit of €38,000.

However, the Central Bank is restricting the number of exemptions to the deposit rules to just 5% all first-time buyer mortgages issued by banks. It was 15%.

For all other buyers, such as movers, there will still be a 20pc deposit needed.

The changes take effect from January.

“Over the past 18 months, the measures have helped to ensure that those who buy homes are better prepared to manage their mortgage payments in the event of a future downturn in the economy or in the housing market,” Governor Philip Lane said.

“While our review process affirmed the value of the overall framework, some modifications to the measures were suggested by our evidence-based analysis.

“The 3.5 times ceiling on the loan to income ratio remains unchanged. The 90pc loan to value ratio limit for all first time buyers simplifies the overall framework, with only 5pc of lending permitted above this level.

“The 20pc allowance for lending above the 80pc loan to value ceiling for second and subsequent buyers is broadly in line with current lending patterns.   The loan to value requirements for all other buyers will remain in place.

“Taken together, these measures constitute a sustainable framework to underpin our financial stability objectives.”

The review was based on the first full set of annual data from lenders, Central Bank research and submissions received during the public consultation.

The Central Bank said it found that since the introduction of the measures there had been a reduction in the amount of new lending at high loan to value and high loan to income levels, “which is contributing to the ongoing improvement in the financial resilience of households”.

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