Central Bank set to ease mortgage lending rules
The Central Bank looks set to relax its mortgage lending rules when it publishes the outcome of a review of them later this morning.
Currently, most house buyers can only borrow up to 3.5 times their income from lenders.
However, following a year-long review of the situation, it is expected that the regulator will announce that it intends to ease that to four times income.
Changes are not expected though to the rules around loan to value caps.
These require first-time buyers to have a deposit worth at least 10% of the value of the property, while second time and subsequent buyers must have 20%.
Purchasers of buy-to-let properties must have a 30% deposit.
Any alterations to the measures are not expected to come into effect until next year.
A Central Bank spokesperson declined to comment on the expected recommendations of the review, which is due to be made public in the morning.
The rules were put in place by the Central Bank in 2015 to prevent a repeat of the credit-fuelled property bubble that led to the financial crash here over ten years ago.
The measures aim to ensure borrowers are able to meet their repayments and prevent an overheating of the property market.
The rules are reviewed annually by the Central Bank, which has long maintained that they are having the desired effect.
But since last year it has been conducting a more in-depth review of the overall mortgage measures framework to ensure they remain fit for purpose.
As part of that a consultation was carried out with a range of stakeholders including borrowers, banks and others.
Brokers, lenders and some builders have argued that the measures are too restrictive because of the rising cost of property.
The changes come at a time that interest rate increases are forcing the cost of borrowing for a home loan higher.
A financial mortgage specialist has said the Central Bank changes to its mortgage lending rules will result in some people being able to buy a home that would not have been able to under the current criteria.
Speaking on RTÉ’s Morning Ireland, Michael Dowling said the changes will, however, not change the fact that it is not easy to get a mortgage.
He said the changes are not “extreme” and income is only one aspect that is assessed in granting a mortgage.
“It’s not going to take away from the fact that it’s not easy to get a mortgage, and a multiple of your income is one part of the test in getting a mortgage,” he said,
The mortgage specialist also said he does not think the Central Bank changes will increase house prices in an environment where interest rates are rising.
Mr Dowling said that single applicants will always struggle to get mortgages because there is only one salary to be used in calculating repayment.
He said that anyone who earns under €60,000 is not entitled to an exemption to the loan to income ratio currently, so it will only be people earning above that who were able to avail of this.
Ireland is unlike other European countries as is “an outlier” in loan to income restrictions, he also said.
He said that only two other countries in Europe lend based on loan to income multiples – Denmark, which lends currently at four times – and the UK, which lends at four and a half times income.
“All other countries in Europe lend based on your net income as a percentage of the mortgage amount. And typically, that ranges between 30 and 40% in Europe,” he added.
Mr Dowling also pointed out that today’s change to lending rules will not in any way affect the number of homes available to buy.