28 Nov 2017 | 01.38 pm
Central Bank Relaxes Mortgage Lending Rules
More flexibility for first time buyers
28 Nov 2017 | 01.38 pm
The Central Bank has decided to stoke the already frothy housing market by relaxing lending rules for mortgage providers.
Though lending will continue to be limited to 3.5 times income, from January 2018 there will be separate Loan To Income allowance pools for First Time Buyers and SSBs (second or subsequent buyer).
Under the relaxed strictures, up to 20% of the value of new lending to FTBs and up to 10% of the value of new lending to SSBs will be permitted above the 3.5 LTI limit.
CBI governor Philip Lane (pictured) stated: “These allocations broadly reflect current lending patterns in excess of the LTI limit to FTBs and SSBs. This revision delivers a simpler, more sustainable long-term policy framework. The larger allowance for above-ceiling lending to FTBs compared to SSBs reflects the different characteristics of these two groups. In particular, first-time buyers are typically younger, with current income levels lower relative to expected future income levels.”
A new Central Bank report published today also details a further technical amendment to the mortgage measures in relation to calculations on the value of collateral in the case of mortgages issued for construction purposes.
According to Lane: “The technical amendment ensures that the current prudent practice in the market, of taking the lowest available valuation for mortgages financing construction works, such as in the case of renovations, continues into the future. This amendment is not expected to have a material impact on the market, as it reflects the most common practice.”
Brokers Ireland, which represents 1,300 broker firms, commented that there is no rationale for differentiating between first and subsequent buyers.
“The 90% loan to value ratio should apply to all buyers, not just first-time buyers. And the 3.5 times gross income is too restrictive and should be eased to 4.5 times’ income for all buyers,” said Rachel McGovern, Director of Financial Services.
“Many people who bought at close to or at the top of the market have been unable to move. As their negative equity diminishes and their housing needs change, the rules compel them to find 20pc deposit (80pc LTV) before they can move. That is a mountain too high to climb for many.”
McGovern added that macro-prudential mortgage rules have driven up rental prices to the extent that it has become cheaper to buy than rent in many parts of the country. “The winners were cash buyers and investors, unfortunately,” she said.
Joey Sheahan, Head of Credit with MyMortgages.ie, said exemptions within the lending rules have meant that homebuyers have been able to circumvent them to some extent. “Over the last 12 months the majority of the applications we have received and submitted on behalf of home buyers seeking exemptions have been approved – providing they meet the individual banks exemption criteria,” said Sheahan.
“For example some banks will require a joint annual gross income of €80,000 before they will consider such applications. In other cases a lender will also require the borrower to have a specific property identified before they will approve an exemption.
“The parameters set by the bank are well thought out so most people who qualify should be able to obtain one subject to availability of each individual bank. Almost all lenders have reached their exemption limit for 2017 but any mortgage application submitted now wont fund until sometime in 2018, which means that these borrowers should be able to fall under next year’s exemption quota.”
Sheahan added that many people don’t realise that the LTV and LTI limits do not apply to where a borrower is switching mortgage provider to reduce their interest rate and not releasing any equity.
“About half of MyMortgages.ie’s switchers are not releasing any equity. We recently ran some numbers which showed that on average mortgages from €150,000 to €350,000 throughout the country people could save anywhere between €40,000 and €100,000 by moving to another lender.”