The Central Bank will ease mortgage lending restrictions in January -- more than seven years after they were first introduced.
First-time buyers will be allowed to borrow up to four times their gross annual income, up from the present loan-to-income (LTI) cap of 3.5 times, which will still apply to second-time and subsequent buyer
The 90% loan-to-value (LTV) threshold for first-time buyers (FTB), requiring prospective homeowners to put up a 10% deposit, will remain in place, with the Central Bank stating that first-time buyers are lower risk than subsequent buyers.
LTV for second-time and subsequent buyers (SSB) will now also be set at 90%, up from 80%. Buy-to-let buyers will still be subject to LTV of 70% when applying for a mortgage.
Lenders will continue to be able to lend a certain amount above the set limits, in line with their own credit policies, when the changes come into effect in the new year. They will also have allowances to permit 15% of their lending above these limits in each of the FTB and SSB markets.
In Association with
Borrowers who are divorced/separated or have undergone bankruptcy/insolvency may be considered FTBs for mortgage measures where they no longer have interest in a previous property.
Finally, FTBs who get 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.
The rules were first enacted in 2015 to prevent a credit bubble of the size that caused the housing market to crash in 2008 by setting limits on the amount prospective homeowners could borrow based on income and property value.
The rules have been reviewed annually by the Central Bank, which has said in previous reviews that they have had the desired effect.
The regulator has conducted an in-depth review of macroprudential policy for residential mortgage policy over the past 18 months to ensure it remains fit for purpose, consulting with banks, borrowers and other stakeholders.
“The review shows the measures have increased the resilience of borrowers, lenders and the broader economy," said Gabriel Makhlouf, governor of the Central Bank.
"However, we are acutely aware that like all policy interventions, the mortgage measures have both benefits and costs to society. A lot has changed since the measures were first introduced.
"The changes we are announcing are both targeted and proportionate, and recognise the resilience built up over the last decade and the structural changes across the economy.”
The review included a public survey that received over 4,000 responses, a public consultation, listening forums and a conference, and the Central Bank looked at the experience of countries will similar measures.
"While many things have changed since the measures were introduced in 2015, they remain an essential policy instrument to maintain financial stability," the Central Bank said in a statement.
"The measures have been working as intended and have strengthened the resilience of borrowers, lenders and the wider economy. The review reaffirms the benefits of the measures, through fostering a more sustainable mortgage market.
"The measures act as system-wide guardrails, and do not aim to replace lenders’ own prudent credit assessments, which remain central to the functioning of the mortgage market."
The Central Bank conceded that the "underlying structural challenges in the housing market" have intensified with an imbalance of housing supply and low levels of building, adding to affordability pressures for buyers and renters alike.
The latest CSO figures show residential property in Ireland was 2.2% more expensive in Q2 than at the height of the Celtic Tiger.
Interest mortgage rates in Ireland have long been among the highest in the eurozone due in part to the high amount of capital lenders are required to carry post-crash and stagnant competition that will worsen with the exits of Ulster Bank and KBC.
The Central Bank said that interest rates rose in August in line with the European Central Bank's decision to increase interest rates by 1.25 percentage points in recent months as part of efforts to bring inflation back in line with targets.
Reacting to the announcement, Joey Sheahan, head of credit at online broker MyMortgages.ie and author of The Mortgage Coach, said the LTV change for SSBs was "a much-needed reprieve for the very many second time buyers who simply cannot save the required 20%.
He added: "There were concerns that increasing the limit could push up the price of property, but there are also concerns that many developers are struggling to deliver homes at prices within the current limits and that a significant number had deferred building until the maths made more sense.
"This higher mortgage limit will hopefully encourage these developers to push ahead, increasing both supply and competition, which should actually slow house price inflation."
(Pic: Getty Images)
