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Central Bank decides NOT to change mortgage deposit rules for first-time buyers

There will be some slight changes in January to loan-to-income limits and collateral for purchase-to-renovate mortgages.

Image: Shutterstock/Barry Jacobsz

THE CENTRAL BANK of Ireland has confirmed that, following its latest review, it will not change the rules in relation deposit required for first-time buyers.

Publishing the review today, it said the requirement for first-time buyers to have a 10% deposit will now continue. This is despite suggestions that this rule has resulted in higher property prices as, previously, first-time buyers had to have a 10% deposit for mortgages up to €200,000 and a 20% deposit for loans above that.

Two slight changes in relation to mortgage lending will come into effect in January.

The first relates to the proportion of income exemptions available to first-time buyers (FTBs) and second and subsequent buyers (SSBs)

Under existing measures these buyers’ loans are capped at 3.5 times their income. This is known as the loan-to-income limit.

Banks can grant exemptions to this loan-to-income limit with up to 20% of all home loans and grant mortgages above the ratio.

Under today’s changes, which will come into effect in January, the proportion of mortgages allowed above the cap will now be split, so:

  • 20% of the value of new mortgage lending to first-time buyers can be above the cap
  • 10% of the value of new mortgage lending to second and subsequent buyers can be above the cap.

The second change relates to how lenders calculate the value of collateral for purchase-to-renovate mortgages.

From 1 January 2018, lenders must take the lower estimated value of the property after completion of all works.

Governor Philip Lane said today that the Central Bank’s analysis suggests that the level of house prices is “broadly consistent with current economic developments”.

However, he said it remains important to mitigate the risks for households and banks in the event of a future decline in house prices.

“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. However, the measures remains sufficiently flexible to allow us to respond to risky lending developments, should they arise in either buyer group,” he said.

“We will continue to monitor developments through our annual cycle of reviews. We stand ready to adjust these borrower-based measures and/or other macro-prudential policy tools as may be appropriate to safeguard the long-term sustainability of Irish mortgage lending and the stability of the wider financial system.”

Read: ‘I’m not going anywhere’: Lay litigants in uphill battle against banks and vulture funds>

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