Strict lending rules for mortgage borrowers are to be relaxed.
The lending rules have been blamed for shutting out a large number of potential buyers from the housing market.
Central Bank Governor Gabriel Makhlouf will announce tomorrow that the rule will be relaxed that people can only borrow three and a half times their income. It is expected to be around four times the income.
This would allow people to borrow more, and credit limits would align better with other countries. It’s known as the loan-to-income rule.
Such a move is a significant development as the central bank has insisted the rules helped prevent homebuyers from becoming over-indebted and meant bank lending made sense.
It is understood there will be no changes to the part of the lending rules that requires first-time buyers to post a home security deposit of 10 percent and 20 percent for second-time buyers.
The relaxation of the loan-to-income rule comes at a time when mortgage rates are rising, which is already restricting people’s borrowing.
Rising costs of living are also acting as a disincentive to borrowing, as buyers have less income left over after paying for basic necessities like fuel and groceries to service a mortgage.
However, there are some fears that the easing of the loan-to-income rule will put further upward pressure on house prices, which are already at record levels.
The measures were introduced in 2015 to protect mortgage holders and banks from another destructive, debt-fueled financial shock.
The rules limit how much homebuyers can borrow based on their income and the value of the property.
First-time buyers are allowed to borrow up to 90 percent of their home’s value, while subsequent buyers are limited to mortgages of 80 percent. Buy-to-let (BTL) investors can borrow up to 70pc.
People who buy a house are only allowed to borrow three and a half times their income.
However, this does not apply to BTL buyers.
Banks can make a limited number of exceptions to these rules, but cannot exceed 10 percent of borrowers.
The rules are among the strictest in the EU, where many countries have credit limits of four or five times income for homeowners.
The changes come after the central bank last year announced a major review of the entire mortgage limit framework to ensure they are fit for purpose. Since house prices have risen much faster than incomes since the rules came into force, the economic environment has changed radically.
However, the central bank has in the past taken pains to emphasize that the lending limit has acted in part as a brake on soaring house prices.
With limited new supply, thousands of buyers are being squeezed out of the market and ironically forced to pay rents well in excess of an equivalent mortgage.
The central bank held a public consultation on the rules last year, with a survey as part of that process finding that most people said the rules were working as intended and that they should be a feature of the market going forward.
Only about one in 10 renters who took part in the online survey said the caps kept them from getting a mortgage.
Instead, most cited high house prices and difficulties in raising a security deposit as the top barriers to homeownership.
Cairn Homes CEO Michael Stanley, who runs Ireland’s largest home builder, has said in the past that the government’s Housing For All plan is at risk because up to 500,000 middle-income people are barred from financing by the strict credit rules.
https://www.independent.ie/business/personal-finance/property-mortgages/central-bank-set-to-relax-mortgage-lending-rules-42076706.html The central bank wants to relax the rules for mortgage lending