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Mortgage change rules to 'boost purchasing power' of renters

The share of renters that can purchase a three-bed semi-detached home in Dublin has fallen since 2015, says the Central Bank.

HOUSING MINISTER DARRAGH O’Brien has said the new mortgage lending rules will see more renters able to buy their own home. 

The Central Bank announced yesterday that the mortgage borrowing limit for first-time buyers is to increase to four times their gross income from January 2023. 

The new rules will see the limits for first-time buyers rise from three-and-a-half times gross income, which had been in place since 2015.

The changes also mean that deposits of 10% of a home’s value are now required for both first and second-time buyers.

In its assessment of the impact of the new measures, the Central Bank said that increasing the borrowing limits from 3.5 to four will give an “immediate boost to purchasing power” of renters. 

Minister says more renters will be able to buy

Commenting on the mortgage rules, O’Brien told The Journal that “the changes made by the Central Bank to their mortgage measures framework will see more renters, who are currently paying high rents, being able to pay down a mortgage on a home, many at a monthly repayment which is lower than the rent they pay”.

“Every single independent survey shows that the overwhelming majority of renters want to own their own home. We know we need to increase the supply of homes, we need to give people options and that’s what we’re doing through Housing for All,” he said. 

The Central Bank estimates that, if applied to properties sold in 2021, an increase in the first-time-buyers loan limit to four “would have restored the share of renters able to purchase the median property sold to 2015 levels”.

Looking at viable levels of demand for new housing, the Central Bank said its methodology suggests that the share of renters that can purchase a three-bed semi-detached home in Dublin has fallen since 2015. 

The methodology also estimates that the increase to four times a person’s income for first-time-buyers will increase the buying power “to around the level experienced in 2015″.  

However, the Central Bank noted that its methodology deals only with the immediate boost to purchasing power, and does not model the possibility that the price-to-income ratio will also adjust across the economy, which the bank said could “offset some of the gains experienced by potential purchasers”.  

The Banking & Payments Federation Ireland (BPFI) Chief Executive Brian Hayes said with the rule change the Central Bank referred to how the measures would increase renters purchasing capacity.

He said there is a “mismatch” as many renters are paying high rental rates and could afford to get a mortgage that would be “significantly less”. 

“So is that the question the Central Bank is addressing? It clearly is,” said Hayes.

Central Bank Governor Gabriel Maklouf said yesterday that the rental market is a very difficult situation that people are dealing with, reiterating that the core issue is around the supply of housing, including in the rental sector. 

Maklouf also said during a briefing on the new measures that someone’s track record of paying rent should also be taken into account when they are applying for a mortgage.

“It is not new advice,” he said. 

“A prudent lender should be doing that already as part of their own assessments,” he said.  

A survey in August revealed that two-thirds of prospective renters believe the current rise in the cost of living has affected their ability to rent a home. 

The survey of 2,861 people, carried out property website, suggests that the cost-of-living crisis is having a significant effect on the home buying, home renovation and rental markets.

Of those surveyed, almost half (49%) of homebuyers said the rise in the cost of living has affected their ability to buy a property, while 63% of prospective renters said the current crunch has affected their ability to rent.

Meanwhile a survey last month by a survey by consumer advocacy group found that nearly one-third of people (30%) said stricter rent controls would help first-time buyers striving to buy their own home because it would make it easier for them to save up for a deposit, while 24% believed a loosening of mortgage lending rules would have a positive impact.

While the measures have been welcomed by the minister, a number of concerns have also been raised by others in relation to the rule changes pushing up house prices.

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