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How will the new mortgage rules impact first-time buyers?

It’s tough out there. How tough?

File Photo The Central Bank last night announced the new rules, which will require higher deposits from prospective homebuyers. Under the plan, banks will only be able to lend up to a maximum of 80% of a propertys value. However, there will be an excepti Source: Sam Boal/Photocall Ireland

LOOKING FOR A home at any time is stressful.

Looking for a home when a limit on what you can borrow is imposed by the state is even more difficult.

Last month, the Central Bank announced new rules that would limit, to €220,000, what first time buyers could borrow while only having a 10% deposit.

Many in that situation feel that a 20% deposit is too steep, so have begun looking for properties below the €220,000 threshold.

Outside of Cork, Dublin and Galway, a large number of homes, particularly those sought by first-time buyers, are below that price. The Real Estate Alliance estimates that around 80% of available homes are below €220,000.

However in Dublin, this is what you’re looking at for under the magic number:

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Supply problems

The supply problems mean higher prices closer to the city mean that first time buyers are being forced to look further outside the city to avoid spending decades saving a €45,000 deposit.

Stephen* and his girlfriend are looking for a house. Both from Cabra, he says that any hope of buying a three-bedroomed home is unlikely, so they’re looking in to heading west.

“We’re looking at Blanchardstown and beyond that. It’s tough because there’s very little in Blanch and what is there is above €220,000.

“The second you go above that number, you’re looking at having the 20% to be sure, so we’re trying to stay under that.”

Karl Deeter from Irish Mortgage Brokers says that the guidelines will do address the real problem that people like Stephen are facing.

“It’s not a credit problem, it’s a supply problem. There just aren’t enough units being built to cope with the demand in urban areas.”

That is echoed by Philip Farrell of the Real Estate Alliance. He says that the 15,000 units that were built last year was nowhere near enough.

“The guidelines won’t make a difference outside Galway, Cork and Dublin. Around 80% of houses bought by first time buyers will be sold for under €220,000.

“If you’re in an urban area, you will be affected because there’s not enough available stock.”

Deeter says that moving to where you can get a home isn’t always the answer.

“If you’re looking outside Dublin, when you get two stops outside town, you have to start questioning it.”

Bargaining chip

File Photo The Central Bank last night announced the new rules, which will require higher deposits from prospective homebuyers. Under the plan, banks will only be able to lend up to a maximum of 80% of a propertys value. Source: Mark Stedman/Photocall Ireland

One thought is that the guidelines could work in favour of those looking to buy houses that are listed at in and around the threshold.

The logic being that an estate agent’s income isn’t hugely different depending on whether the difference between prices

Stephen is hoping that he can use the Central Bank rules as negotiating chip, using the cap to get vendors down to his level. That’s a strategy Deeter doesn’t think will work.

“You’d just tell the person to get away. You’re not going to take less money for your home.”

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Farrell says it might be a tactic worth pursuing, but only

“To the vendor, the commission might not be significantly different at €230,000 to €220,000, so it’s probably worth making the offer. But only if you’re ready to buy.

“If you can buy at €220,000 and have mortgage approval, a vendor is more likely to accept your offer if the other person only has approval in principle.”

Not affected

With the guidelines so new, it is tough to gauge the effect they will have on those buying below the threshold, but for John* and his wife, years of saving may be about to go on.

They are looking to buy in the Dublin 6 area and spend around €400,000. After renting and saving for 14 years, they may now need to save double that amount to meet mortgage criteria, something he describes as “frustrating”.

He wants more done to help take the burden off housebuyers.

“[I'd like] more tax relief on buying house hold goods i.e. kitchens, beds and so on. Most houses require some amount of work before you can move in.”

Farrell says that if you are a first time buyer, the key is still the same: be organised.

“Get your stuff together, get saving and then get your approval.”

For Deeter, however, the advice is slightly less optimistic.

“Rent.”

Read: 300,000 people who owe €2.5 billion have asked for help

Read: Buying a home? You’re facing fresh competition. A glut of new landlords

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